Seasoned contractor? Or just getting into the game? Either way, you’ll know about IR35! Now April 2017 has brought drastic changes to the way it operates within the public sector, causing hysteria. Is the private sector due the same shake-up?
For those that don’t know
This complex anti-tax-avoidance legislation has had us on our toes since it was launched by HMRC in 2000, unnerving contractors and agencies alike. It is aimed at preventing people from incorrectly labelling themselves as self-employed whilst providing services through their own limited company to reduce their tax bill.
Who is in scope: where the limited company contractor is under the supervision, direction or control of the client during the assignment or in circumstances where, if the intermediary did not exist, an individual would be regarded as the client’s employee (for tax purposes) and as an “employed earner”
Who is out of scope: where the limited company contractor is not under the supervision, direction or control of the client during the assignment or in circumstances where, if the intermediary did not exist, an individual would be regarded as self-employed (for tax purposes and for NICs purposes)
The factors which would assist the courts in determining your status can be found in the relevant legislation and case law. There are many but check out our infographic for the main three.
The responsibility of determining your status lies with you, the contractor.
5 IR35 MYTHS debunked
- I need to use client equipment so I must be inside IR35!
Whilst provision of equipment from the client can be an important factor, client sites will often have strict security and safety requirements. These may well lead to rules against using your own equipment when providing your services. In those instances, this factor is unlikely to lead to an inside IR35 decision.
- I need to work onsite each day so I must be inside IR35!
Whilst working from home demonstrates your independence some contractors may need to work on site to access networks or persons that are crucial in delivering their services. In those instances, this factor is unlikely to lead to an inside IR35 decision.
- I work set hours each day so I must be inside IR35!
Working set hours alongside employees can be a serious factor. However for security reasons or ones of practicality it may not be possible to provide services to your client outside of their normal operating hours. In those instances, this factor will not lead to an inside IR35 decision. Still, make sure that your contract does not
stipulate set working hours, lunch breaks, holidays etc
- I’ve been in the same contract for 2 years so I must be inside IR35!
The longer you work somewhere the more likely you are to be deemed ‘part and parcel’ of the company. However as long as the other factors are in your favour, time onsite will not be a defining issue. Additionally, the 2 year period often talked about most likely relates to the 24month Rule relating to travel expenses. This has no connection to IR35.
- I liaise with a client manager so I must be inside IR35!
Contractors must on no account be under the supervision, direction or control of their client. However, reporting back to an internal manager is likely to be a part of delivering your services effectively. Contractors can therefore liaise with them, but should ensure there are no appraisal or review processes in place.
What are the 2017 changes?
- Currently the changes only effect the public sector
- The responsibility of determining the contractor’s IR35 status has now shifted to the public authority
- If the public authority decides the contractor is inside IR35 they will begin deducting tax at source
- Travel and subsistence expenses will also no longer be allowed
- And even though they will be taxed as an employee, they will not gain the rights an employee is entitled
What we have seen so far are public sector organisations, such as Network Rail, making blanket decisions ruling all their limited company contractors as inside IR35 forcing them to begin paying PAYE and NI at source with little explanation.
Contractor forums and advice sites across the web are reporting public sector contractors either shunning work or demanding an increase in rates in order to compensate for the higher taxation.
How would you rate your knowledge and understanding of IR35?
Where you aware of the IR35 changes this year before reading this article?
What approaches would you consider taking if they did roll out in the private sector?
Spier wants to be one step ahead of HMRC and we’re sure you do too. So why not get in touch with our Contracts team and tell us what you think!