Most of the people reading this blog will be aware that change in IR35 tax legislation for the private sector will come in to force from April 2020 and how it will be the responsibility of the client to assess whether a contractor is a genuine contractor rather than a ‘disguised’ employee, for the purposes of paying tax.
Contractors who work through their own limited company enjoy a level of tax efficiency. While they don’t get employee benefits (like holiday and sick pay), they have flexibility and control over their work.
The benefit for employers hiring workers in this way is that they don’t have to pay employers’ National Insurance contributions or give contractors employee benefits. The benefit of contractors is tax efficiency.
So, IR35 assesses whether contractors are employees when they take on work for clients. If you’re ‘inside IR35,’ HMRC sees you as an employee and you face PAYE and National Insurance, just as employees do. You don’t face this if you’re ‘outside IR35.’
If you’re a client or contractor working out the IR35 status of a contract, there are a few things to consider as part of a checklist.
In general, the IR35 legislation is trying to decipher whether a contractor is providing a genuine service and has a highly skilled role rather than working in the same way as the client’s employees. To untangle that, you should see whether the role specifically mentions these principles:
Supervision, Direction, Control– this relates to how much say your client has over how you complete your work. For example, if you have to work in the same conditions as employees of the company, being given tasks, working the same weekly pattern as direct employees and being directly supervised this implies employment. Genuine contractors can often work remotely and choose when they work in order to meet deadlines and complete the task determined by the contract.
A contract that falls outside of IR35 will give contractors freedom over how they complete their work. A contract that specifies things like the time you can start and finish work, or the days you’re required to work, is one that points towards employment.
Other elements of a contract that HMRC would advise is ‘inside IR35’ include a client overseeing your work excessively and giving guidance on how to complete it.
Substitution– Could you bring someone else in to complete the contract, or do you need to do the work yourself? If your Limited Company is contracted then they could supply someone of equal skill to complete the work if you were unable to? The likelihood of this happening is minimal, however, having that as an option is an important factor to determine whether the role is a genuine contractor rather than an employee.
Mutuality of Obligation (MOO)– is there an obligation on the employer’s end to offer work, and do you have to accept it? This is called mutuality of obligation, and if it exists, the contract will fall within IR35.
If the client is obliged to offer work (and pay you) and you’re obliged to take it, this demonstrates a contract of employment. In practice, a self-employed contract means working on a project-by-project basis. Once you’ve completed a project, you’re under no obligation to work on further tasks (and the client is under no obligation to offer them).
Working through an agency or third party like myself minimises this risk massively.
There are more criteria to consider when determining your IR35 status such as equipment and the way you’re paid. There are a lot of factors to consider when gauging if a role falls ‘inside’ or ‘outside’ IR35 and if you need support there is a tool you can use provided by HMRC.
This tool can be found online and be used as many times as required to help customers and contractors understand the IR35 status in more detail.
Why speak to me about it?……………..
IR35 is not new but it has always been the role of the contractor to determine their own status. The changes to the legislation have been in place within the public sector for over 2 years, at IT Works we have a ‘Health Service’ team (Healthcare/NHS) who work within the public sector and has encountered IR35 legislation for the duration.
IT Works were ahead of the curve developing a compliance team, infrastructure and processes to work successfully within the directive. For the past two years, we have successfully engaged the Public Sector client base without a single issue, working within the IR35 stipulations.
We have increased our contractor base during these past two years and are in the perfect position to expel the myths propagated by those who have no established IR35 compliance routine as we have two years’ worth of practical and successful working history to share with our Private Sector clients.
I understand the position and can empathise as this was our position back in 2016, navigating the range of inexperienced and conflicting opinions.
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