Much has been written about the expected reforms to IR35 in the private sector. The reform, due to come into force from April 2020, will see medium and large companies become responsible for setting the tax status of their contractors.
If you are a small business you will be excluded from the legislation but you need to ensure that your annual turnover is no more than £10.2m, your balance sheet total is no more than £5.1m or you do not have more than 51 employees. Contractors who provide their service to small businesses will remain responsible for setting their own IR35 status.
Equally recruitment agencies who place contractors with employers will need to be aware of the IR35 regulation. If they are the ‘fee-payer’ they will carry the IR35 liability following the reform.
Read our recent blog on IR35 and why disputes may arise for more information on the details of IR35.
Why is it important to understand if you fall inside or outside of IR35?
The legislation reform will see end clients become responsible for deciding whether they believe those that they employ on a contract basis fall inside or outside of IR35.
However, the legislation also states that end clients will need to share the details of the decisions they come to with their contractors. Whether you fall inside or outside of IR35 can have a significant impact on the tax that you will pay.
Therefore, as someone who works on a contract basis for a medium or large sized business, it is important that you understand the regulation and know in your mind if you fall inside or outside of IR35. The regulation is complex so this may mean that you need to seek professional advice.
What factors help determine IR35 status?
There are three key factors to consider when determining IR35 status, so it is worth keeping them in mind when thinking about your own IR35 status:
- Supervisions, direction and control – The level of control that a client has over you as a contractor can affect your IR35 status. If a client sets your working pattern, dictates how work must be completed then it is more likely to fall under employment. You’re more likely to be viewed as working as a contractor if you are free to set your working hours and decide how to best get your own work done
- Mutuality of obligation – as a contractor you are not obliged to continue working for a client after a project has completed. Equally, a client is not obliged to offer you more work once you have completed a project for them. If there is an obligation on either side (to offer work, and to complete work) then you may be more likely to be within IR35.
- Substitution – consider if you must do the work yourself, or if you are able to send a substitute to complete the work for you. If you are able to send a substitute, then your contract will likely fall outside of IR35. If the client only wants you and your skills, you may be more likely to be classed as an employee
There are many other factors which may affect your IR35 status. The IR35 legislation is a complex one so it is always best to seek specialist advice if you have any questions or concerns.
What if you disagree with the decision made about your IR35 status?
As mentioned above, whether you fall inside or outside of IR35 can have a significant impact on the tax that you pay.
Once the reform comes into force on the 6th April 2020, your end client (if you are employed by a medium or large company) will make the decision about your IR35 status.
If a decision is made that you fall inside IR35 and you disagree with this what can you do? The legislation reform set out by HMRC provides a formal disagreement process, which gives the end client 45 days to respond to a contractor who believes their IR35 status to have been set incorrectly.
It may be a good idea to seek legal advice regarding your current IR35 status as there is still time before the reforms come into place.
Legal expenses insurance from Tapoly provides access to a tax advice helpline. If you are unsure about IR35 legislation and how it may apply to your business, you may feel that IR35 insurance would be of use to you. It effectively provides you with tax investigation insurance as you can get advice from a qualified specialist. The tax helpline is available between 9am and 5pm on weekdays (except bank holidays).