IR35 News

If you are a director contracting your services via a limited company, HMRC’s IR35 (often described as ‘disguised employees’) rules may apply to you, especially if you provide services to a medium/large company.
Make sure you’ve got it covered!

Here’s a recap of the IR35 rules:

  • The IR35 rules consider the ‘true’ basis of your work relationship with your client (regardless of the limited company you operate from) – is it more like an employer/employee relationship?
  • You have an obligation to assess each of your client contracts to see if the IR35 rules apply.
  • The assessment is broadly looking for key employment indicators associated with your contract e.g. control/direction by client, right of substitution, provision of equipment, financial risks and rewards etc.
  • You can make an assessment for each client contract you have in place, using the HMRC ‘Check Employment Status for tax’ (CEST) online tool. The assessment works through a number of questions to help you establish if you fall under the IR35 rules. This can then be printed and saved as evidence of your status for that contract, should HMRC request this from you.
  • In simple terms, if you fall under IR35, payroll taxes will need to be operated for the income you earn from that particular contract.
IMPORTANT change to the IR35 rules that came into effect 6th April 2021:

  • If your contract is with a medium or large-sized company* (you may need to ask your client to confirm this detail), your client will now be responsible for assessing your IR35 status rather than you.
  • They will provide you with a Status Determination Statement (SDS) and will operate payroll taxes on your fees if the rules are deemed to apply. This means you will have tax and National Insurance deducted at source and you will receive a payslip as you are treated as an employee. You need to keep these, and your P60, to add to your Self-Assessment Tax Return.
  • If your contract is with a small company, you retain the obligation to make the IR35 assessment for yourself.

*Company size is classed as medium or large if two out of the following three criteria apply: Turnover – more than £10.2 million; Balance sheet assets – more than £5.1 million; Employees – more than 50

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?
Remember, you can make an assessment for each client contract you have in place, using the HMRC ‘Check Employment Status for tax’ (CEST) online tool.
If you’d like to find out more,
HMRC has lots of
IR35 information online
in their ‘Off-payroll working rules
from April 2021:
Contractors’ pages.
If you aren’t sure if IR35 applies to you, please call or just click here to email us, and we will help you work it out.
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