A Guide To IR35

May 23, 2019

Categorised in: IR35, Tax Legislation,

Introduction To IR35

IR35, which is also referred to as Intermediaries Legislation, was introduced by HMRC in April 2000 to counter tax avoidance schemes.

As a contractor worker, you might try to disguise your employment by operating through an intermediary such as your own limited company or an employment agency, thus not paying tax or National Insurance. The aim of IR35 is to prevent this from happening by clamping down on self-employed workers using the ‘disguised work’ method to ensure that all National Insurance and taxes are paid correctly.

When Does IR35 Apply To Me?

In order to determine your employment status, IR35 will apply three key features:

  • Control

How much control does the client have over the contractor. Your contract should clearly state that you are in control of all aspects of the service you provide. This includes your start and finish time and also providing your own tools and equipment. You will need to be able to prove that you are not working as an employee of your clients company.

  • Substitution

If deemed necessary, a contractor will have the right to substitute their services with another individual to fulfil any contracts that you have secured. A contract should not be based on the conditions that you are personally conducting the contracted work. In the event that you need to provide a substitute worker, your company would uphold responsibility for the contract and the substitute workers payment.

  • Mutuality of Obligation (MOO)

MOO can be described as a concept where the employer has to offer work and the employee has to accept it. MOO is a key test when determining self-employment status, it is an important clause to include in any contract. As a contractor, there are no expectations from you once you have completed the contracted work. It is crucial that you are able to provide evidence for the start and end date of each contract as without these confirmed timescales, HMRC may decide that your contract status is an employee rather than a contractor.

Non-Compliance Penalties

If you are working as a self-employed worker and your work falls within the IR35 regulation, you must pay HM Revenue and Customs both tax and National Insurance. Failure to comply with the IR35 regulation can lead self-employed workers paying back all tax and National Insurance owed, including interest owed on these amounts.

If you believe that the IR35 legislation applies to previous contracts that you have fulfilled, then you can make a voluntary disclosure. This may also reduce any potential penalties you have to pay.

In circumstances where you have deliberately ignored the IR35 regulation, then not only will you have to pay back the tax and National Insurance owed, it is possible you could also be hit with a penalty.

Further Help

If you are still unsure and require further information relating to IR35 compliance, you can contact HMRC direct.

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