All About IR35 For Contractors and Freelancers

Monday November 3, 2014

IR35 legislation was introduced in April 2000 to prevent what HMRC consider “disguised employment”. If its title sounds like the name of a robot mercenary tasked with tracking down quasi-legal space privateers, you're not far off.

Before IR35, workers with their own companies could be paid directly to the company and distribute profits as dividends, which are not subject to National Insurance payments. They could also split ownership of their company with family members to place income in lower tax bands. HMRC were concerned people were leaving their permanent positions on Friday and returning to the same desks on Monday as Limited Company contractors.

IR35 was brought in so that all Limited Companies operate with the same risk and accountability. If your situation's essentially the same as if you were a permanent employee, you'll probably fall under IR35 and have to pay full tax and National Insurance.

Many people become contractors for the greater flexibility, while some are forced into it by organisations hoping to dodge the responsibilities that come with permanent staff. Either way, you can't get the full up-side of being a contractor when you're operating like a full-time employee. You'll have to consider each contract individually to see whether IR35 affects you, and it's worth talking to an expert if you're unsure whether you're within the rules..

Is My Contract Inside or Outside IR35?

There are many factors to consider to answer this. For example:

  • Do you take financial risks?
  • Is your contract on a fixed fee, whether a daily rate or fixed contract rate?
  • Do you have more than one client at a time, or regularly change clients?
  • Do you have the final say in how you work for the client?
  • Can you make a loss on the contract?
  • Do you have to provide your own equipment? Note: if security considerations mean you have to use equipment provided by the client, your IR35 status isn't affected.
  • Are you free to hire other people to do the work? If so, do you pay them from your own pocket?
  • Do you have to correct unsatisfactory work in your own time and at your own expense?

If you answered 'yes' to all of the above, HRMC probably consider you self-employed . However, answering 'yes' to most of the following may mean you're an employee for the contract in question, and therefore within IR35:

  • Do you work set hours, or a given number of hours per week or month?
  • Do you have to do the work yourself?
  • Can someone tell you when and how to do the work?
  • Are you paid by the hour, week or month?
  • Can you get overtime pay?
  • Do you work at the client's premises, or somewhere decided by them?
  • Do you generally work for only one client at a time?

If you are looking for an IR35 accountant then RIFT Accounting can talk you through the more complex issues affecting your taxation status, and help determine the actions you need to take.

For example:

  • What should I do if I need to make IR35 payments?
  • How does IR35 relate to paid salary and dividend calculations?
  • When must I pay additional tax and National Insurance?
  • What happens if I stop working through my Personal Service Company or Partnership before the end of the year?
  • What expenses may I deduct?
  • What are the rules for working abroad?

Call us on 01233 653006 and see how we can help you today.

Contact Us

Newsletter Sign Up

Fieldset legend