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10 Myths and Misconceptions about IR35

IR35

As with many complex ideas, the internet is full of myths, misunderstandings and half-truths about IR35, and it can be difficult for contractors to know which information they can trust. If you’re contracting through your own limited company, you need to have at least a basic understanding and working knowledge of IR35. With that in mind, our experts have chosen some of the more common myths and misconceptions, so we can explain how it really works.

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IR35 is new and will start in April 2021

The number of contractors who think they “don’t need to bother” about IR35 until April 2021 is quite worrying. The legisaltion itself is twenty years old, and if you’re a contractor trading through a limited company it affects you right now. You need to know your IR35 status and be able to evidence it if challenged.

The detail that’s changing in April 2021 is that the client will be made responsible for determining your status, and they will be liable if they get it wrong. At the moment, that liability lies with you, and HMRC can investigate up to eight years in the past, so it’s vital that you’re on top of it.   

Only public-sector contractors need to worry about IR35

This stems from the public-sector reform of 2017, which made public-sector bodies responsible for assessing IR35 status. Yes, the process is different in the Public Sector and contractors are not allowed to decide their own status, but private-sector contractors are already affected. It’s just as important that contractors in the Private Sector understand IR35 because they are currently responsible for their own status.  

All contractors will be inside IR35 from April 2021

Much of the contracting industry is concerned that contractors will be incorrectly forced inside IR35, so it’s easy to see where this misconception might come from. However, there are enough well-informed clients who understand the case for assessing correctly that there will be opportunities for contractors to work outside after the reform. Orange Genie will continue in our efforts to educate recruiters and end clients, in order to maximise those opportunities. We know other stakeholders are doing the same.

A single detail in your contract means you’re outside IR35

The most common example of this is a substitution clause, but there are other details that many people think make a contract “IR35 friendly”. It’s important to realise that no one detail is ever enough to put you either inside or outside – your situation as a whole must be taken into account, and this includes the contract and your actual working practices.

There are contractual details that can make it more likely that you’ll be inside or outside, but only if they match the reality of your situation, and no single detail will decide your status on its own.

A single detail in your working practices means you’re outside/inside IR35

We often speak to contractors who are sure they’re either inside or outside because of some detail about how they work, and again, there are things that will affect your status but no single detail will decide it. This misconception is particularly problematic when contractors believe they must be outside because of minor details like having an email address or a business card with their limited company name, but its also important to realise that stronger indications are not conclusive on their own. There are many possible versions of this misconception, for example:

  • If you have to work on your client’s premises during office hours, you have to use your client’s equipment or substitution is not possible for security reasons, it doesn’t necessarily mean you’re inside.
  • If you work for more than one client, have the right to send a substitute or get to decide when and where you work, it doesn’t necessarily mean you’re outside.  

Determining IR35 status is complex, and requires that you consider many different variables, which is why it’s important that each new contract is reviewed by an IR35 expert.

You’re automatically inside IR35 after working for the same client for 2 years

This may come from confusion between IR35 and the 24 month rule, which affects your travel and subsistence expenses when travelling to a temporary workplace. Your status is not affected by the length of time that you work for a particular client, although the longer you work exclusively for a single client, the easier it will be to “drift” into behaving like an employee.  It’s also worth noting that long periods of exclusivity could be taken as an indication that Mutuality of Obligation (MOO) exists.

You have a statement of works so you’re definitely outside IR35

If you’re actually providing a “statement of work” service, rather than labour or personal services, this could be a strong indication that you’re outside, but this only works if the reality of the situation matches. Simply having a statement of works will not help if all other indications place you inside.

You must be outside IR35 because you have no employment rights

Employment in a legal sense and employment for tax purposes are two separate things. It’s entirely possible for you to be inside IR35 (employed for tax purposes) and not employed in a legal sense. Being inside IR35 does not give you any additional rights.

This is one reason why many contractors switch to umbrella employment for inside IR35 contracts, as this avoids the “no win” scenario of “zero rights employment”.

Other contractors working for your client are inside/outside IR35, so you must be

Each contractor’s situation is different, which is why so called “blanket IR35 determinations” have proved to be disastrous for public-sector end clients. The details of your working practices are likely to be different to those of other contractors, even if you’re doing the similar work for the same client, and your contract could also be different. Your IR35 status needs to be assessed separately, and your individual circumstances taken into account.

You automatically have the same IR35 status for every contract

Even if the work you’re doing is broadly the same, the details of your relationship with each client will be different and contracts may vary even between projects at the same client. Each contract needs to be assessed individually, and it’s entirely possible to be inside IR35 for one contract, and outside for the next.

If you have any questions, or if we can help in any way, please call our expert team on 01296 468 483 or email info@orangegenie.com.

 

 

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