What do you know about IR35? Does it apply to your contract? A concise guide to IR35.
The key elements you need to know
What is IR35?
IR35 is a piece of government legislation created to help distinguish genuinely independent contractors from those who are essentially disguised employees. IR35 was introduced by HMRC in 2000 to tackle the problem of contractors working full time via their PSC to gain tax advantages.
What about status?
Every contractor’s IR35 ‘status’ effectively determines their tax position with HMRC. End Client’s are now required to scrutinise the roles and responsibilities of every contractor they hire, according to the rules laid down within IR35. This is usually in the form of a Status Determination Statement or SDS.
The SDS will determine if a contractor is genuinely independent, bearing the risk of self-employment and therefore entitled to tax advantages. Or, if they are essentially performing the role of a PAYE employee. If a contractor’s relationship with their client falls inside IR35, they will be taxed according to PAYE. If it falls outside, they will be taxed as a Limited Company.
A Client should assess the contract role and then produce an SDS, however what we are seeing is a lot of end hirers putting a blanket ban in place. They have made the decision to not take on any limited company contractors and will only take them on via a PAYE solution (effectively an umbrella solution). This can lead to the end client losing the best talent on the market, as those Limited Company contractors will just look elsewhere for outside of IR35 roles where the client has fairly assessed each contract role.
With special thanks…
We would like to thank Brookson Legal Services (an SRA Regulated law firm that focuses on IR35 for their contribution to this useful IR35 breakdown. Should you wish to find out more, why not explore Brookson’s FAQ’s on IR35 by Clicking Here.