IR35 is UK tax legislation that is designed to tackle tax avoidance by workers supplying services to clients as an intermediary rather than an employee. Genuine contractors and freelancers should not fear IR35 but should still be aware of and understand the legislation to ensure they comply. It’s been 20 years since IR35 was introduced but its enforcement has been challenging and often contested. Given its full title, the Intermediaries Legislation actually takes its title from the press release issued by the Inland Revenue (as it was at the time) announcing its creation.
So what does IR35 mean for Contractors and Freelancers?
IR35 hinges on whether a worker should be considered an employee of the end client or they can genuinely be regarded as an independent intermediary.
Key considerations include whether the worker receives benefits such as sick pay, and if the position is effectively a permanent role that could be carried out by an employee, or whether it requires specialist skills and has a fixed start and end date.
If a worker would normally be an employee but they are operating as a contractor, then they are called ‘disguised employees’ by HMRC. It has been known for a company to employee contractors to avoid paying benefits, NICs and providing employment rights. Proving that a worker is an employee is not the same as proving the worker is self-employed; that is an entirely separate argument and not relevant to IR35.
The decision about whether a worker is or is not an employee is carried out by a review of the terms and conditions of the contract for services, and the working practices. If you are a legitimate contractor or small business, then IR35 will not apply. However, that does not prevent HMRC from launching an investigation into whether it does. An investigation can be stressful for a contractor, as well as time consuming and costly. To ensure that you understand the conditions and ensure that you are operating outside of IR35, we would recommend contacting an accountant with expertise in contractor accountancy.
HD Contractor Accountants have worked with freelancers and contractors for many years. We provide all of our services in-house, including IR35 contract reviews and advice. We have many years of experience in determining employment status and are accredited by the Professional Contractors Group to give IR35 advice and to carry out IR35 reviews.
If you are new to contracting, administration and tax requirements can be daunting. Our team will give you as much help as you need. Get in contact with us today.