The new IR35 legislation.
We’re all aware of it, we’re all talking about it, and if we’re honest, we’re probably all confused by it! After attending 43 workshops, 19 online talks, reading 863 PowerPoints and having at least once stress cried with my Director, I can safely say I still have questions!
Before giving up with this article hear me out. Yes, I still have questions but that’s because the legislation is constantly being updated and changed. Different definitions are being debated and new models of online tools are coming. So, I hear you ask, what exactly is it that I know?
What IR35 is
IR35 is the name given to tax legislation which applies to individuals supplying their services through a Managed Service Company or through their own Limited Company (PSC). It seeks to ensure that those working through their own PSC’s are not actually "disguised employees" and therefore paying employment tax and NICs by classing them either "Inside IR35 or "Outside IR35"
What is changing
Up until 2017 responsibility for deciding whether an engagement was inside or outside IR35 was with the contractor themselves. In April 2017 this responsibility was moved from the contractor to the End Client (Organisation), Recruitment Company or other Third Party that is engaging with the contractor. It applied only to contract assignments in the Public Sector. But now it’s getting rolled out to the Private Sector and will take affect from April 2020… joy!
What causes an “inside” or “outside” determination
To determine whether a contractor is considered inside or outside of IR35, key criteria such as substitution, control & mutuality of obligation are reviewed to establish the employment status.
Working as a self-employed contractor means you can work on a project-by-project basis without any obligation to continue working for that client once the contract comes to an end. Clients are under no obligation to continue offering you contracts once the project you’re working on is complete. If a client is obliged to offer you paid work and you’re obliged to take it, this is an example of a contract of employment, meaning you fall within IR35.
A genuine right of substitution has been deemed an important factor when demonstrating that a contractor’s assignment falls “outside” of IR35. For a substitution to be considered valid, the right to supply a substitute must be genuine. This means that the client must agree to it in practice and the contractor must find and pay for the substitution which should be an unfettered right, which means that the client must accept a substitute if the initial contractor is unavailable.
In most cases where professional services are provided, it’s important that a contractor can demonstrate a certain amount of autonomy in the way they undertake a project. Both the written contract and working practices must show that the client has no influence over how the contractor performs their services. The individual has to be responsible for the delivery of the services.
Control factors that may point towards “inside” IR35
- Indicating that the contract will be supervised
- When and where the work is completed
- The inclusion of any “staff benefits” such as holiday or sick pay, discounted canteen, staff shop
- Having start, end and break times (including lunch breaks)
- Contractual clauses that specify any rights of control or supervision over the contractor
So, there we have it. The foundation of my knowledge on IR35, hours of work, tears and the occasional glass of wine condensed into a few small paragraphs!
Of course there is more that I could expand on, and over the next few weeks you can expect more information on how to go about implementing the changes brought about by the new legislation from both a contractor, client and agency perspective.
But for now, I would simply make yourself aware of what’s being discussed and what’s actually being changed.