More than six months into the revised IR35 regime for the public sector and reports show that more contractors are being caught by the legislation. This, combined with announcements in the Autumn Budget that the rules could soon be rolled out to include the private sector, makes understanding IR35 legislation more important than ever before.
The Chancellor’s Budget document revealed that the government is preparing to consult on off-payroll working in the private sector, of which the findings will be published in 2018.
Since April 2017, the responsibility to determine the IR35 status of a contractor working in the public sector moved from the individual to the end client. Despite the legislation requiring ‘reasonable care’ to be taken when making the assessment, concerns have been raised that organisations are adopting a risk-adverse blanket approach and declaring contractors inside IR35.
An increasing number of contractors are now beginning to challenge their IR35 status decision with their client, and organisations, including TFL and the NHS, have announced they are reversing this blanket approach to apply the rules on a case-by-case basis.
Being caught by IR35 will see you deemed as a disguised employee, meaning full employment tax and National Insurance Contributions (NICs) will be deducted from the payments that your limited company receives from that assignment.
Whether you’re new to contracting or have been working as a contractor for a number of years, IR35 can be difficult to understand. The legislation exists to determine if an individual is a genuine contractor or full employee working through a limited company to take advantage of the tax-efficient structure.
Contractors need to be aware of the implications for whether you’re deemed inside or outside and the financial implications of each. For example, a contractor paid £200 a day, travelling 2,000 miles per month and registered as a ‘Limited Cost’ trader, would be £750 a month worse off if deemed inside IR35.
Speaking to an IR35 specialist will help you to assess your individual situation. Thoroughly reviewing your contract and working practices will give you peace of mind and help you to decide how best to operate. Champion have access to employment law specialists that can assist with this process.
As a brief guide, the main factors that are analysed when examining whether an assignment falls inside or outside of IR35 are:
- Control – Do you have complete autonomy in the way you conduct your assignment?
- Mutuality of obligation – As a contractor, you work on a contract-for-service basis in order to complete a particular task or project. Once this is complete, you can then move on or accept another assignment
- Personal service – A lack of personal service means that you don’t have to carry out the work yourself as the contract is between your company and the client. In doing so, you must be able to provide a substitute in your absence
- Your business’ role – A limited company is a business in its own right, meaning that you should be treated as a separate entity from your client’s workforce and not take a position that’s deemed business as usual. You also shouldn’t receive any employee benefits such as gym memberships, access to pension schemes and reserved spaces in the staff car park
- Financial risk – By operating as a business, you must be able to demonstrate an element of financial risk, for example, offering the client compensation should a project go beyond the agreed deadline
For those working in the private sector, your IR35 status is currently still your responsibility and any risk from getting it wrong falls on you.
For more information and advice around IR35 legislation, contact Chris Bloor in our Champion Contractors team on 0161 703 2549 or chris@championcontractors.co.uk
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