Whether you are found to be working inside or outside of IR35, IR35 rules will have an impact on the taxes you pay. With the IR35 legislation change in 2021, it’s no longer up to you to determine which category your contract falls into. The responsibility of this now sits with the end hirer, where that end hirer is a medium or large company as defined by Companies House.
It’s still your responsibility to determine your own IR35 status where your client is a small business or where your end hirer is a foreign entity with no UK presence.
So, how do you find out your IR35 status?
What determines your IR35 status?
In order to determine your IR35 status for a specific contract, the end hirer must take a wide range of factors into account. Once they have expertly weighed them up, they will issue a Status Determination Statement (SDS) which will be passed either directly to you or your recruitment agency to update you on.
Where to start?
The first thing your end hirer will review is the contract and working practices, taking three main things into consideration:
- Substitution – can you send a representative to carry out the work on your behalf or are you obliged to fulfil the contract yourself?
- Supervision, direction and control – does your end hirer oversee your day-to-day tasks?
- Mutuality of obligation – is the end hirer obligated to offer you work and are you obligated to take it?
If it can be demonstrated that any of these three factors don’t apply to your contract, then the determination should be that you’re outside IR35 regulations.
Other mitigating factors
IR35 experts must also consider other factors when making their determination:
- Payment – whether you’re paid at regular intervals or when a project milestone, such as completion, is reached.
- Alternative work – if you’re permitted to have more than one client simultaneously.
- Equipment – Whether you’re using your own equipment or that supplied by the end hirer.
- Premises – where you will be working.
- Corporate involvement – whether you are clearly identified as a contractor or appear within a company’s structure can affect your IR35 status.
- Financial risks – maintaining professional indemnity insurance and the responsibility to correct any errors suggests you’re a contractor and not an employee.
- Profit from own sound management – having the opportunity to benefit from performing well or cutting costs.
- Benefits – whether the contract entitles you to holiday pay, sick pay and a pension.
- Clarity of intentions – the contract should accurately describe the intentions of the two parties.
- Contract termination – whether the contract terminates when the project comes to an end.
- Precedent – if the end hirer has had issues associated with IR35 in the past.
Working contracts both Inside and Outside of IR35 legislation?
You may not be aware but working contracts both Inside and Outside IR35 legislation in the same tax year can cause significant consequences and the very real risk of an unexpected tax bill if you do not get the right accounting advice.
We don’t want this to affect you. We want to help you take back control and be as tax efficient as possible by ensuring you are prepared, protected and are IR35 compliant, no matter your current or future situation.
That’s why we built Flex. Flex is a unique accounting service built to simplify very complicated IR35 legislation and help you manage the complexities of switching between Limited Company and Umbrella contracts.
Learn more about our Flex solution!
Contact Intouch Accounting, the best accountants for contractors for expert IR35 advice.