The Complete Guide to IR35 Rules

There are new IR35 rules (or off-payroll working) that will come into place in April 2021. These were postponed from 2020 due to the Coronavirus pandemic. IR35 changes have been brought into place to ensure that contractors are working as a contractor and not an employee in disguise. HMRC decided to implement this new rule as some contractors and clients were using the tax benefits associated with working on a self-employed basis while operating in a role as an employee of the company.

Inside and Outside IR35

If a contractor is found to be inside IR35, it means that you are recognised as an employee by HMRC, which means that you should be paying the same income tax and National Insurance like any other employee. If you are outside IR35, it suggests you are self-employed, which means that you have the tax benefits of a self-employed worker but without the benefits, such as sick pay. 

The IR35 Changes Checklist

  • Does your contract specify specific start and finish times? If so, this would suggest employment, rather than self-employment.
  • Do you have guidance on completing your work, will the client oversee your work? This is more like an employee’s role than a self-employed contractor.
  • If you fall outside IR35, you will likely be able to substitute yourself for another contractor, if need be. This is one of the main ways to show HMRC that you are outside IR35. If the client must provide you with work, and you must take the work, it suggests you are an employee and not a contractor.
  • Self-employed workers are usually paid on a project basis, rather than receiving a salary regardless of work completed. They are often paid in milestones, i.e., before the project starts, in the middle of the project, and at the end.
  • You would usually provide your own equipment when working on a self-employed basis. It would be unusual for the client to provide this, although it depends on the client and the confidentiality of the work.

The three main principles are control, substitution, and mutuality of obligation. Control relates to what level the client has over the work you do. Substitution is based on whether you can provide someone else to do the work, or if it is a personal service, and mutuality of obligation relates to whether you need to receive and accept projects.

If you want to check IR35 status, you can do it here.

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