When you sign your first contract, it’s a good idea to check whether it falls inside or outside IR35, which is essential to ensuring you are compliant. Most contractors ask their recruitment consultant for advice, but for expert advice, please contact us and Access Tax and Accounting will provide a free, initial verbal contract review.
But what is IR35 and why should you care? Well, here’s the short answer to your question.
IR35 is legislation that came into force in April, 2000. The purpose was to stop people from enjoying the tax advantages of being a contractor, despite the fact that they were actually working as permanent employees. They enjoyed the tax benefits but didn’t have to take on the additional responsibilities of owning a company, which would entail having the same degree of responsibility, control and liability that directors of other limited companies are subject to.
What the HMRC wanted to avoid was situations such as an IT employee resigning from their job on Friday, but returning on Monday to perform the same tasks, for the same employer and the same manager and even from the same desk. The only difference would be that on Friday, he or she was a permanent employee and on Monday they came in as a contractor operating through their own limited company.
When contracting through a limited company, there are certain tax advantages available to you because of the higher volume of work, the greater degree of responsibility and the higher level of risk. For example, dividends withdrawn from a limited company – the profits you take out of the company – are not subject to National Insurance contributions, which is only logical since you wouldn’t be able to take advantage of the traditional benefits you’d enjoy as an employee, such as sick pay, holiday pay, a pension and so on.
What Does It Mean to Be Inside or Outside IR35?
To be inside the IR35 means that you have the same status as a permanent employee in terms of the responsibilities, benefits and control you have. This is also referred to as being caught by IR35. Some of the factors that play an essential role in determining whether you are inside or outside IR35 include:
- Financial risk
- Provision of equipment – there is an exception here because there are situations where you might have to use the client’s equipment, especially on secure sites
- Employee benefits
- Right of dismissal
Many of these factors will appear in your contract, but that’s not enough. Your working practices must be in line with the stipulations of your contract. The HMRC will want to see your contract, but if your working practices aren’t aligned, matters might become complicated.
There is a lot of misinformation floating around about IR35 as well as plenty of urban myths that simply aren’t true. This is why you should always seek professional advice, which ATA would be more than happy to provide. Call our New Client Services team at +44 (0)207 193 9218 or email us at firstname.lastname@example.org and we’ll be more than happy to answer any questions you might have.
It might still be a good idea to operate through a limited company even if you fall inside IR35. You’ll find more information on being inside IR35 and operating through a limited company on this page. For more advice on IR35 for contractors, IR35 rules, IR35 business entity tests or for an IR35 calculator, please contact us right away at +44 (0)207 193 9218or via email at email@example.com..
How Does IR35 Affect Me?
The HMRC will want to analyse your contract and if you are caught by the IR35 legislation as a result, you will have to pay all the National Insurance contributions you’ve avoided thus far, which will be the minimum cost to you if you are caught.
The main issue with IR35 is that it causes a lot of uncertainty for the individual. Employment status is a complicated matter at best, and the IR35 uses an extensive list of factors to determine your status, which is why the best option is to seek professional advice.
The easiest and most accurate way to determine your IR35 status is to get an IR35 Contract Review. At ATA, we offer a free verbal contract review. If you’d like your contract reviewed by one of our friendly experts, please fill out the contact form and we will get back to you right away.
The contract review service we provide is unparalleled. We guarantee a next-day reply, even though 95% of the time we respond the same day. We will also only charge you for the full review if we feel the contract passes the IR35 test. In the review, we provide guidance on why we think you pass. If we believe the contract fails the IR35 test, we will provide advice on how you can restructure your contract and assignment so you can pass the test.
For more information on IR35, please check the Contractor’s Guide to IR35. If you still have doubts or are worried about your IR35 status, please don’t hesitate to contact us right away at +44 (0)207 193 9218or via email at firstname.lastname@example.org. Or, you could fill out the contact form and we’ll contact you as soon as possible.