IR35

Are you affected by the latest IR35 legislation amendments?

What is IR35

The Intermediaries Legislation, also referred to as IR35, is a set of tax laws that form part of the Finance Act. They have been created to prohibit workers claiming to be contractors purely for the tax benefits when in reality their ‘work’ is more like an employer-employee relationship.

What do the latest changes mean?

Contractors working for an end client or agency, who are invoicing directly as a freelancer (self-employed) or as a director, will not be able to pay themselves a self-employed salary or dividends and will not be able to offset expenses.

If a contractor wishes to continue operating via their own limited company, they will be required to pay themselves as an employee of that limited company. This means they will be subject to Corporation Tax and Employers National Insurance deductions as well as Employees PAYE (Pay as you Earn) tax.

Does this apply to all contractors?

If you are a genuine contractor, freelancer or consultant working on your own, in your own business, with your own tools and equipment, providing services to multiple clients the rules may not apply to you. There are tools you can use to determine your IR35 status. HMRC provide tools which can be convoluted, so you should discuss your options with an accounting professional to obtain a clearer understanding of your IR35 status.

IR35: am I compliant?

As a contractor/freelancer it is imperative that you make sure you are compliant with this legislation. Recruitment agencies will also be accountable for ensuring compliance.

One way of understanding whether you can continue to operate as a sole trader, freelancer or limited company director is to understand ‘SDC’.

‘Supervision, Direction and Control’ is a test based on;

‘What’ work is done, ‘when’ it is done, ‘where’ it is done and ‘how’ is it done. There are three main points;

• Supervision; Is the contractor supervised by someone else to ensure work is completed and to the required standard? This can also be another person aiding or training the contractor.

• Direction; Will the contractor be instructed to work in a certain way following certain instructions and processes? Someone receiving direction will often have their days coordinated for them by a senior person.

• Control; Will the contractors work be “controlled” by someone else? Most likely the contractor is given a deadline to complete work and can be moved from one task to another, as required.

If you do not fall within these provisions, it is likely you do not fall within IR35. If you do then it likely that you will be affected.

When do these changes come into effect?

The new legislation will come into effect in April 2021. Contractors must be IR35 compliant by this date.

If you would like more information or to discuss your IR35 status, please don’t hesitate to contact a member of our team.