IR35 affects contractors who don’t meet the Inland Revenues definition of someone who is ‘self employed’, at least in regards to IR35 explained by the Government. As a contractor it is important to establish whether the definition refers to you. Although the guidelines are incredibly vague, the Inland Revenue state that they will take an overall view of a contractors position to determine whether he or she are deemed as ‘employed’ or ‘self-employed’, under their IR35 explained rules. Therefore, any contracts that are amended also need to reflect working practices.
IR35 Explained: Basics
If you provide your services to an end-user or a client via an intermediary but the intermediary does not meet the set terms for being a ‘Managed Service Company’, then the legislation implementing IR35 could apply to engagements with that client. IR35 explained rules applies where engagements involve services personally being performed for a client, where services are perhaps not directly provided for a client but following agreements made by an intermediary or if the circumstance is such:
“If you had provided the services directly to the end user under a contract between you and the client, you would have been regarded for income tax purposes as an employee of the client and/or, for NICs purposes, as employed in employed earner’s employment by the client.”
Furthermore, rights must be received so that you are entitled to obtain payment or benefit outwith income from employment, according to the Governments IR35 explained rules.
IR35 Explained: Occupations affected by the Legislation.
The legislation around IR35 is not targeted towards any particular industry or occupation, but it can apply to all occupations in any sector of business. For example, chief executives of large public limited companies, employees of accountancy and law firms and doctors, nurses, IT staff and engineering contractors can be affected, according to the IR35 explained laws and legislation.
These rules around IR35 will be applied if the intermediary does not reach the defined levels to certify them as a ‘Managed Service’ company. The same rules apply should an employee work for a client directly, taking away a company or partnership.
IR35 Explained: What does it mean for Contractors?
Should your working practices and/or your contracts cause you to be ‘caught by IR35 legislation’, you will have to pay full tax and national insurance contributions, according to IR35 explained rules. This will also reduce the amount of expenses you can claim for. The reasoning behind this is Her Majesties Revenue and Customs (HMRC) belief that you will not be obtaining the same level of risk or control as a director of your own company. Therefore, you will not be permitted the same corporate tax structure.
IR35 Explained: HMRC Investigation
Should HMRC launch an investigation and they unveil that you are a ‘disguised employee’ inside the IR35 legislation and implementation laws, you will then be accountable for any evaded taxable amounts. A heavy fine will be imposed.
If you are unsure about where your contract falls then it is advisable to have the contract looked over by a specialist in the area. Contact Euro Accountancy & Finance Services if you require IR35 explained in further depth.