What is IR35 and what does it imply for contractors and clients?
13 Jul, 20223 minIR35, defined as off-payroll working by HMRC, is a tax legislation aiming to make sure that ...
IR35, defined as off-payroll working by HMRC, is a tax legislation aiming to make sure that contractors and businesses pay the appropriate taxes. In other terms, it seeks to stop the concept of ‘disguised employees’, which refers to individuals acting and working like employees but registered as limited companies or other intermediaries, in order to pay less taxes than a standard employee by being off the payroll. On a business/client side, this means that the company saves significant amounts of money on employers National Insurance contributions and do not have to provide a contractor with employee benefits.
Inside or Outside IR35?
When applying for a role as a contractor, you probably asked yourself this question: Is this assignment inside or outside IR35? And the answer to that question would define whether or not you would take on the job.
Put in simple terms, ‘Inside IR35’ means that the role you are applying to will make you ‘act’ like an employee of the prospected company and therefore you will have to pay your taxes like a regular employee.
Outside IR35 means that you will lawfully act and work as a contractor therefore you can pay the taxes as they would apply to a contractor status.
Contractor or end client: Who is accountable for IR35 compliance?
Contractors are responsible for IR35 compliance if the services are provided to a small company from the private sector.
Clients are responsible for IR35 compliance if the services are provided to a client from the public sector, or a client classed as a medium or large company.
How can I check if my/my contractor’s status is IR35 compliant?
There are a few elements assessing of the status of a contractor. Below is a non-exhaustive list that can guide you.
The HMRC can also provide you with a number of helping tools:
| Contractor | Employee |
Substitution | Has the right and are able to provide a substitute to complete the work in their place | The work you’re assigned to is person specific (personal service) |
Mutuality of Obligation | Must complete the work he’s contracted for and does not have to accept to take any further work | Must be continuously provided with work or must undertake additional work if asked to do so |
Control | The employer has very little control on the contractor’s day to day work | The employer controls what, when, where and how the work shall be done |
Financial Risk | Has costs related the run of the business. Ex: Equipment, training, insurances, indemnity in case of neglected or defected work | Has no financial risk and will get paid regardless of the quality of work provided |
Why is it important to be IR35 compliant?
The main risk in not being compliant is obviously financial. HMRC can investigate anyone at any time and dig up to 6 years prior to the date of control.
The costs would then include your defence against HMRC but also the refund of all unpaid taxes and potential interests and penalties, should you lose your case.
It is therefore important to put in place the appropriate strategy and checks to make sure you know where to stand how to pick the right assignment that is going to work financially for both the contractor and the end client.
How does MA operate in terms of IR35?
We work with a number of clients and contractors based in the UK, so IR35 is not unknown to us.
We partner with an insurance company that will help us make sure that all situations and relations between contractors and clients are compliant and the assignments are ok to start.
So, whether you’re a contractor or an end client, don’t hesitate to get in touch to know about our latest vacancies or submit your need to fulfil a role. Our specialised recruiters and our legal team will be there to support you in the process!
Sources:
ir35 Compliance Guide
ir35 Understanding
What is ir35
