Members of Equas are not impacted by IR35 legislation, if that is all you needed to know then there is no need to read on.
If you are not a member of Equas and are looking for advice on this very complex area then there really is only one piece of free advice worth having – seek proper advice from a specialist.
What is IR35 and what do you need to know about it?
Experienced contractors will be (or should be) familiar with IR35. It is a part of the UK tax legislation framework which is targeted at arrangements surrounding “disguised employment”.
The legislation is supposed to equalise the total tax paid by a self-employed person doing the same job as someone who is full-time employed, however it is widely accepted that the actual effect of IR35 is to levy a higher tax burden of an additional 14% on the self-employed. IR35 is clearly something which you should pay attention to.
Getting this wrong can prove to be a costly mistake. HMRC have the power to examine the contracts you sign with your clients and if they are deemed to be in IR35 then you will be liable for any unpaid income tax and NI in addition to interest on any unpaid amount together with penalties.
HMRC also have the power to look back six years at contracts you enter into with your clients so it is important that you take steps to consider the impact of IR35 before you start contracting. If you are caught by IR35 then you can expect to be given a maximum of 6 months to repay all sums and penalties which can have a detrimental effect on you and your new business.
A quick internet search will provide you with a host of links offering free guides on IR35 looking at things like Supervision and Control, Financial Risk, Substitution, Equipment, Exclusivity, Dismissal and Employment Rights which are all based on tests and case studies provided by HMRC. In short, if you look like an employee, are controlled in a similar way to an employee and have the same rights as an employee then HMRC are more than likely going to class you as an employee, or inside IR35, and this will apply whether you operate through a limited company or not.
These guides can be useful in bettering your own understanding of this very complex area but they should not be considered as a substitute for sound legal advice, something which all guides will also point out the need for and for that reason we do not publish an IR35 guide.
If you are confident in your own ability to navigate IR35 and opt not to seek professional advice make sure your contract proves beyond doubt that you are providing a service to your client and insofar as is practicable within your industry, make sure your contract does not suggest any of the agreed working practices are similar to that of an employee, do this and your contract should fall outside of IR35. But be warned, a poorly drafted contract is almost certainly going to result in HMRC classifying you as high risk of being in IR35.
If you think there is a risk that you might be deemed to be inside IR35 then you should seek specialist advice to help mitigate any potential exposure you may have.
You may fund these links useful: