Does it affect you?
Despite the confusion and dislike of IR35, every contractor needs to consider their status and take any necessary action. However, the legislation does not apply to all contractors. Current unofficial estimates state that around 20% of contractors are affected by the legislation, or deemed to be ‘inside IR35’, 20% are definitely outside and the rest are in a grey area in the middle. Determining whether contractors are affected by IR35 is complex and can change during the lifetime of a contract and is why contractors need to seek reliable advice from a trusted IR35 expert.

As well as the legal requirements, the financial aspect of IR35 is key for contractors, since those deemed to be ‘inside’ the legislation will pay significantly more tax. A contractor caught by IR35 will typically receive 20% less in their take-home pay than a contractor who falls ‘outside’. This equates to around £800 per month for a contractor earning £40 per hour. No one wants to pay more than the correct amount of tax and national insurance liabilities.

Defining self-employment
There are three major factors which, although not exhaustive, must be considered during an assessment of IR35:

* Control /independence – how much control does the contractor have in influencing how the project is run? Can they make decisions about timing or what equipment to use? Even a senior employee who may have substantial control over his or her own work will always be subject to some control from his or her employer. If control of this sort is absent or minimal then we are not looking at employment and IR35 cannot apply. * Personal services/subsititution – is the end client specifically seeking the skills of the individual or could another person be sent in their place to provide the service? Services which are, or can be, provided by more than one person are not personal services. IR35 legislation is set out in terms of a person being under an obligation to personally supply services. * Mutuality of obligation – is there an obligation that the individual will be paid whether there is work or not? An employee would be expected to accept work and the employer to pay. If you were self-employed and there was no work you would be sent home and would not be paid. Absence of a sufficient mutual obligation means that IR35 cannot apply.

Dates to remember
IR35 reviews should be undertaken regularly but there a number of key points when they are crucial:

* Whenever the contract is up for negotiation or renewal, even if this is numerous times * When end of year P35 and PAYE submissions are made (this is also a crucial time for a contractor to declare if they are working ‘inside IR35’) * Between the end of the tax year and the following 31 January, when personal tax payments become due, but it is recommended that a review is always completed before self-assessment personal tax returns are submitted. Posted By Haydn Pyatt - Sep 14, 12:01 PM.
Tags: Employment , Tax