What is IR35?

All the latest information and insight into IR35
 

IR35 Basics

What is IR35?

IR35 or the Intermediaries legislation was designed to combat what HMRC saw as tax avoidance by “disguised employees”.

What is a disguised employee?

Essentially a worker, who if it was not for the fact that they operate through a limited company, would be deemed an employee based on their relationship and working practices with their end client.

Who does IR35 affect?

Contractors operating through their own Limited company, recruitment agencies and end clients.

When does IR35 apply?

The IR35 should be applied to every new contract and contract extension.

What does it mean to be caught by IR35?

If “caught” by or “inside” IR35, a contractor is a “disguised employee” and will pay tax as an employee.

If “not caught” or “outside” IR35 a contractor is deemed to be in business in their own right and a business to business relationship exists.

How is IR35 determined?

There are three key employment test areas to consider, along with becoming part and parcel of a client organisation

Personal Service

“Personal service” exists if a worker is required to attend and they do not have the ability to send someone else in to carry out the work instead of them

Control

This is a measure of how much “control” the end client has over where, when and how the work is performed.

Mutuality of Obligation (Moo)

“Moo” exists where an end client has to offer work to an individual under the terms of a contact and the individual has to accept it

Part & Parcel

Contractors should be conscious of slipping into a business as usual role and taking part in the end client’s normal activities usually associated with employment

Who determines IR35?

Currently contractors working in the Private sector carry the responsibility to determine the IR35 status of their contacts and are ultimately responsible for ensuring that the correct Tax and NI is paid.

Since April 2017 the rules have been different in the Public Sector. Responsibility for determining the IR35 status sits with the Public Sector body engaging the worker. If the contract is deemed “inside” IR35, then the party paying the Limited company, the “fee-payer”, must tax the contractor at source as they would an employee on their payroll.

What is changing?

Draft legislation has been issued that changes the rules in the Private sector from April 2020. The key changes are:-

  • IR35 status determinations will be the responsibility of the end client if they are deemed to be “medium” or “large” in size
  • If the end client is “small” under the definition of the Companies Act 2006, then the contractor retains the responsibility to determine their own IR35 status
  • If the end client is responsible for the status determination the statement with reasons, must be passed to the worker and the agency that the end client contracts with
  • The worker and/or agency have the right to appeal the status determination
  • The end client has 45 days to consider the appeal, either re-affirming their original decision or issue a new statement with reasons
  • If found to be “inside” IR35, the fee-payer in the supply chain must ensure that the correct Tax and NI is deducted before paying the contractor
  • If “inside” IR35 the 5% allowance, historically given to cover the costs of operating a Limited company, will be lost
  • If “outside” IR35, the fee-payer can continue to pay the contractors invoice without deduction

Still not sure?

IR35 is complicated. We recommend speaking to an expert in IR35 legislation. Orange Genie Accountancy works alongside Bauer and Cottrell, IR35 specialists. Bauer and Cottrell will review not just your contract but importantly will look into the working practices between your end client and you the contractor. They will then be able to tell you if your contract would be seen to be inside or outside or IR35.

If HMRC does decide to review your status, Bauer and Cottrell will support you and put the facts to HMRC; they are yet to lose a case, so you know you would be in safe hands.

To find out more about Bauer and Cottrell or how Orange Genie Accountancy can help you with setting up your limited company, please call 01296 468 185 or email accountancy@orangegenie.com.

Why Orange Genie Accountancy?

Orange Genie Accountancy offers fixed fee accountancy packages to contractors and freelancers. Each client has unlimited access to their own dedicated approachable and friendly accountant. All Orange Genie Accountancy accountants are specialists in the contracting market, so they can give you bespoke, high quality advice.

We will always keep you informed about anything that could affect you and your company. Our relationships with our clients are extremely important to us so we'll be in touch often, whether it be face to face, over the telephone or email.

Our packages start at £75 + VAT a month for an online service. Our most popular package is £120 + VAT a month which provides you with your very own dedicated accountant as well as:

  • Unlimited accountancy support
  • Face to face meetings so we can get to know you and understand your contracting goals
  • Proactive contact
  • Director and employee payroll
  • Annual Return
  • Self-Assessment Return
  • A fully compliant service so you are safe in the knowledge that you are meeting your legal obligations

​And much more, includingaccess to wealth management advice, IR35 reviews and pensions planning. 

If you would like to appoint Orange Genie Accountancy as your accountants please either fill out our enquiry form or give one of our friendly expert accountants a call on 01296 468 185 or email accountancy@orangegenie.com

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