What is IR35?
The off-payroll working rules can apply if a worker (sometimes known as a contractor) provides their services through their own limited company or another type of intermediary to the client.
An intermediary will usually be the worker’s own personal service company, but could also be any of the following:
- a partnership
- a personal service company
- an individual
The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance contributions as employees. These rules are known as ‘IR35’.
The client is the organization who is or will be receiving the services of a contractor. They may also be known as the engager, hirer, or end client. The client will be responsible for determining if the off-payroll working rules apply.
Who the rules apply to
You may be affected by these rules if you are:
- a worker who provides their services through their intermediary
- a client who receives services from a worker through their intermediary
- an agency providing workers’ services through their intermediary
If the rules apply, tax and National Insurance contributions must be deducted from fees and paid to HMRC.
Before 6 April 2021
If you’re a worker and your client is in the public sector, it’s their responsibility to decide your employment status. You should be told of their decision.
If you’re a worker and your client is in the private sector, it’s your intermediary’s responsibility to decide your own employment status for each contract. The private sector includes third sector organizations, such as some charities.
From 6 April 2021, the way the rules are applied will change.
All public sector authorities and medium and large-sized private sector clients will be responsible for deciding if the rules apply.
If a worker provides services to a small client in the private sector, the worker’s intermediary will remain responsible for deciding the worker’s employment status and if the rules apply.
IR35 checklist:
There is no definition of self-employment or trade in statute and we must look to case law for guidance as to employment/self-employment status. From this rich source emerged the ‘badges of trade’; the modern equivalents are:
- Extent and degree of control exercised by the client over the worker: a self-employed person would probably have control of the work done: an employee would be subject to control by the employer over the time and method of working.
- Right of substitution: the self-employed may sub-contract work or bring in assistance; it is rare for an employee to have the right to appoint a substitute.
- Mutuality of obligations between worker and client: a contractor may turn down work, or work in his own time, the client is not obliged to offer work and is not paid unless he works; an employee is obliged to be available and cannot turn down work. He is paid even if he is given no work.
- Financial risk: a contractor will quote for a job and may incur a loss or profit from work done; little risk for an employee, except lack of promotion and little expectation of profit, except a bonus.
- Employee right and benefits: not available to a contractor; available to an employee.
- Part and parcel of the organisation: a contractor may become a regular but has no additional responsibilities as a result; an employee is capable of being promoted and managing other staff.
- Length of and right to terminate contract: a contractor may have a short-term contract and no right to terminate unless the other party is in breach; an employee has an open-ended contract and can give notice according to the terms of the contract.
- Mutual intention: a contractor’s stated intention may not reflect the facts; an employee contract would be persuasive.
If you need advice regarding your status please book an appointment with Campbell Accountants and Tax Advisors Ltd.