You’ve probably heard of IR35 if you’re a contractor, but you may not be completely clear on how it may impact you. We’ve put together a short overview for you to help you get your head around it all. Following our recent contractor information event, where we invited industry experts Paystream and Kingsbridge Insurance to talk us through the changes, we’ve put together a short overview for you to help you get your head around it all.
We do need to caveat the full impact of IR35 isn’t completely clear as the draft legislation only came out last month and the final draft is not due until later in the year. As such, this information should be only be considered a guide.
What is IR35?
IR35 is a piece of legislation that was introduced in 2000 designed to make sure everyone is paying the correct tax and NI.
It is basically a series of tests that aim to find out if someone is genuinely running a business, or is a “disguised employee” working through a PSC (Limited Company).
A “disguised employee” is someone, who if they were not engaged with a client via their PSC, they would otherwise be employed by the client and paying employee tax and NI.
You may also see it referred to as ‘off-payroll working’ by HMRC.
What changes are coming into effect?
Currently, determining whether an assignment is inside or outside IR35 sits with the contractor but this will be changing, and the determination will sit with the client as of April 2020. These changes have already come into effect in the public sector.
How to determine if your assignment falls inside or outside IR35?
There are a number of factors that are assessed to paint an overall picture of your employment status, and therefore whether an assignment is caught by IR35 or not.
- Do you have the right of substitution? Can you substitute your services for someone who is also qualified to complete the assignment?
- Do you have control and direction of the assignment? Are you able to decide where, when and how you work, or are you under the direct control of the client?
- Are you providing equipment? Are you using your own equipment or is this provided by the client?
- Are you embedded in company life? Do you have access to staff facilities, staff social events or receive staff benefits?
- Are you running a business? Is your PSC registered for VAT, have you got the relevant business insurances, including business public liability and professional indemnity insurance in place. Do you have dedicated office space in which you have carried out contract-related work?
Top tips for staying up to date
- Discuss with your clients and recruiters, and consider speaking to an expert
- Understand the new process and what defines your status
- Check your insurances
- Check your working practices against your contract, and consider renegotiation if you think you may be affected
- Do your research, and be aware of unscrupulous companies who are offering ‘too good to be true’ solutions
Should we be worried about IR35?
We can’t yet make any firm predictions on the future with the information we have, but here are some of the points our experts raised at our recent IR35 event.
We’ve been here before. As IR35 has already come into effect in the public sector, the private sector has had lots of opportunities to learn from this. It’s also worth noting that due to the speed of the implementation for the public sector, blanket decisions made by organisations to determine all their contractors are automatically inside are unlikely to be commonplace in the private sector world.
It isn’t designed to affect genuine contractors. If a contractor is legitimately outside IR35 today, then they should continue to be outside IR35 after April 2020.
Digital and contractors go hand in hand. The freelancer economy is growing and is a huge part of the digital industry. As such, it seems unlikely it will be the end of this way of working, just a change of process.
There is going to be a learning process for the industry, but with continued collaboration and open communication between all parties, genuine contractors should have little to fear.
We’ve been following developments closely, and have taken advice from trusted sources like APSCo around this legislation, which is currently in draft stages. We’ll do our best to keep this blog as up to date as possible, but even in the public sector, the rules are not yet completely clear cut, so we recommend you seek independent legal advice if you need to.
If you have any questions, get in touch at firstname.lastname@example.org.