Updates to IR35

Friday April 7, 2017

IR35 – has become a very ‘hot topic’ in recent months with a lot of rumours flying around which are often contradictory and an interpretation as ‘someone understands it’.

Here at RIFT Accounting, we are often asked whether IR35 is relevant for various circumstances, and so along with our colleagues in RIFT Legal Services, we have tried to explain simply below who it affects and whether you would benefit from talking with us further.

So let’s start with the definition of IR35.

IR35 refers to the United Kingdom's anti-avoidance tax legislation designed to tax "disguised employment" at a rate similar to employment. In this context, "disguised employees" means workers who receive payments from a client via an intermediary, for example, their own limited company, and whose relationship with their client is such that had they been paid directly they would be employees of the client.

The place to start here is to ascertain ‘who’ you are doing the work for – is it the ‘Private’ or ‘Public’ sector?

If your clients are in the private sector, IR35 compliance is your responsibility and you need to be asking yourself questions like the following:

• Could you be an employee? – Is what you are offering a ‘personal service’, could you send someone else to do the job and if so what restrictions would there be on this?
• Is there control over your work? – Are you told how to work, when to work, the hours to work, when to take holidays etc., you need to be able to prove a ‘sufficient lack of control’
• Is there a ‘mutuality of obligations’, an example of this could be ‘…would you be sent home if it rains’, ‘…do you have to be at that site / office’ – you are in effect proving there is no commitment between yourselves to do work, and that there is no commitment between you.
• Are you “in business” – are there other factors which show it is a bone fide business in its own right?

Due to changes which will take effect from April 2017, if you work for the public sector, IR35 will apply differently than for the private sector.

• In the public sector it is the responsibility of client/agency to decide if IR35 applies
• Some public bodies are considering each contractor separately, others are making blanket policies that IR35 applies.  
• If you are undertaking work for the public sector that is a ‘fully contracted out service’ for which you tendered for the whole of a project, using your own resources and are fully accountable for the outcome then IR35 doesn’t apply.

If it is decided you do come under IR35 then it will probably be the case that you will either be paid as an employee or through an umbrella company who will deduct tax and national insurance (NI) as if you are an employee (the costs of employing you in this way could also be passed down to you), at source – your accountants would take this into account when your end of year accounts are completed.

If you are unsure whether IR35 applies you can check HMRC’s Employment Status tool on the HMRC website.
Should you have a contract that you would like to have checked through, then please let us know and we will put you in contact with our colleagues at RIFT Legal Services