What is IR35 and How Might It Affect You?

What is IR35?

Intermediaries Legislation (more commonly known as IR35) was established to deter the avoidance of tax and National Insurance Contributions (NICs) through the use of intermediaries. IR35 focuses on ‘disguised employees’, or contractors whose relationship with the end client they are providing services to would be the same as if they were on the end client’s payroll.

Why was IR35 established?

Before the introduction of IR35, an individual could avoid being taxed as an employee by providing his or her services through an intermediary, thereby ‘disguising’ as a contractor instead of declaring him or herself as an employee. IR35 came into effect on 6^th April 2000 to deter this form of disguised employment.

Does IR35 affect me?

If you are a contractor, you may be at risk of being classified as falling foul of IR35. Factors that suggest a breach of IR35 include:

• Personal service specification – A contractor is engaged to provide a service and not a specific individual to the end client. A contractor who cannot be substituted in his or her absence may be viewed by the HMRC as an employee rather than as a contractor. Contractors should ensure a right to substitution clause in contracts.
• Control – It is essential that the contractor has control over how, when and where the work is carried out. The end client cannot stipulate the contractor’s working conditions, such as in terms of set working hours or daily supervision.
• Mutuality of Obligation – A contractor is said to fall inside of IR35 if there exists a Mutuality of Obligation between the contractor and the end client; i.e. the end client is obliged to offer work to the contractor and the contractor is obliged to do it. The contractor has to prove that the work performed is not ongoing like it is under normal employment law (between an employer and employee).

These are the main points covered in an IR35 assessment, but there are many other elements that are taken into consideration.

How Do I Protect Myself Against IR35?

Just Accountants can put you in touch with accountants who will be able to advise you on the best preventive methods for your individual case, and help protect your independence as a contractor. Contact us to receive up to 4 accountant recommendations for free.