Who is most likely to be affected by IR35?
A Personal Service Company (PSC) is the key target of this legislation – this is a limited company (or partnership) where the majority of income of the company is generated by work performed personally by the shareholders, for example a limited company with a single shareholder/director, where all work is performed by that one individual.
In what circumstances do the IR35 rules apply?
If your business is a PSC, you need to look at each contract you have in place with your clients. When considering that contract, you need to check if the relationship between you (the ‘worker’) and your client would be that of employee and employer, if it wasn’t for the existence of your limited company.
If so, IR35 applies – you are deemed an employee (regardless of the limited company set-up) and you will need to pay taxes in line with the IR35 rules.
If not, IR35 doesn’t apply and you do not need to make any changes.
The important thing is to make sure you make this assessment for each of your client contracts, and you keep your notes in case HMRC asks for evidence.
How do I know if the relationship would be deemed employment?
There are many indicators of an employed status. Whilst it can be a minefield, if you run through some of these factors you will start to build a picture and the nature of your relationship with your client should become much clearer:
- Control – who controls what work you perform, where you work, when you work, how you work, how much you are paid for the work?
- Substitution – does your contract require you to specifically work for your client or do you have the right to provide a substitute in your place?
- Equipment – do you provide all your own equipment to perform your service or is it provided by your client?
- Financial risk – do you bear the risks and rewards in full of the contract you have in place e.g. if something was to go wrong would you have to put it right at your own expense?
- Exclusive service – do you work for only one client?
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