At J A Neale Bookkeeping and Payroll we understand that all the new legislations facing businesses can be overwhelming and confusing. With this article we what to help you make sense of the IR35 legislation coming into force in April 2020.
IR35 is a set of tax laws designed to figure out whether a self-employed worker is genuine or cheating the system. For example, someone works for an organisation as a freelancer, but they have the same hours and duties as a full-time employee would. As per IR35 this employee is known as a ‘disguised employee’. The IR35 is being implemented to ensure that contractors/freelancers are paying the correct tax.
There is an increasing number of workers in many industries who consider themselves as small business owners even though they are working for the same business on a regular basis as per the example given above.
The intention of this legislation is to establish the true employment status of contractors who may be setting up their own business to work mainly by the rules of another business, just like an employee, in order to disguise their actual employment status to reduce taxes paid by an employer.
The legislation itself is complex to read however we have listed below a few basic points. The IR35 rules apply to you as a contractor if you meet all the following criteria:
- Personal Service – You/they have to do the work yourself and not able to send a substitute in your place. The task/job role relies on you specifically.
- Control – As an employee you’d have a duty to perform the role as instructed by your employer. If you are free to complete the task your own way, in a time suitable to you and at a location of your choice (i.e your own personal workspace) then you are not an employee. HMRC accept doing the task at a time and place to suit the client, does not necessarily make you an employee as sometimes this may be the only practical solution.
- Mutual Obligation – The business is obligated to provide work for you. If you are assisting the business because you also have other clients work to do, this will keep you outside the rules of IR35.
If you have read the above criteria and still unclear, then below are some further basic indicators that suggest you are running your own business rather than being an employee.
- Do you work for several different clients?
- Do you provide your own equipment i.e. pc, stationery, transport, insurance?
- Do you have all the financial risks i.e. to correct errors in your own time or refund for bad work?
- Do you have to promote your business i.e. advertise, networking, marketing etc.?
- Do you have a separate business telephone number, website, insurance or office space?
- Do you invest in training and keep the business profits?
- Are you registered with Data Protection?
- Are you VAT registered; do you maintain the detailed accounts?
- Do you consider yourself to be a business owner (this is important)?
As from April 2020, it is up to the company benefiting from your services to determine your employment status. IR35 can apply to anybody who works through a Limited or Personal Service Company (PSC) to provide a client or organisation with a service.
If the worker is deemed to be self-employed, they fall outside the IR35 requirements. If they are classed to be a more ‘permanent’ part of the organisation they provide a service to, the worker will have to pay taxes as if they were an employee and the employer will also have to pay Employers National Insurance contributions.