Let’s face it, the world of freelancing and contracting can feel like a maze, especially when you stumble upon tax legislation like IR35. But fear not! This article is here to simplify IR35, explain how it’s worked out, and highlight who’s in charge of figuring out your IR35 status. We’ll also chat about why it’s so important that your day-to-day work reflects what’s in your contract and delve into some celebrity IR35 cases that have been splashed across the news.
What on Earth is IR35?
IR35, or as it’s officially known, the off-payroll working rules, is a bit of UK tax law that came into play in 2000. Its job is to make sure that contractors working through limited companies, who’d be seen as employees if they were working directly for the client, pay about the same amount of Income Tax and National Insurance contributions as regular employees.
Figuring Out Your IR35 Status
When it comes to working out whether you’re ‘inside IR35’ (seen as an employee for tax purposes) or ‘outside IR35’ (seen as a self-employed worker), there are three main things to consider:
- Right of Substitution: This is all about whether you can send someone else to do your job under the contract.
- Mutuality of Obligations (MOO): This means the client has to provide work and you have to do it.
- Control: This is about how independent you are when you’re working under a contract. The more you can choose how and when you work, the more likely it is that IR35 doesn’t apply.
Why Your Work Should Mirror Your Contract
It’s really important that what you do day-to-day matches up with what’s in your contract. HMRC will look at the whole picture to decide whether you’re ’employed’ under the rules. So, if there’s a mismatch between your contract and your actual work, it could throw a spanner in the works for your IR35 status.
Celebrity IR35 Cases
You might have seen a few high-profile IR35 cases involving celebrities in the news recently. These cases have shone a spotlight on how tricky IR35 can be and what can happen if you get it wrong. They’re a reminder that IR35 can apply to anyone who provides their services through an intermediary, no matter what industry or profession they’re in. And they show that HMRC isn’t afraid to chase cases where they think IR35 rules have been broken, which just goes to show how important it is to understand and apply these rules correctly.
Who’s in Charge of Figuring Out Your IR35 Status?
Since April 2021, all public authorities and medium and large-sized clients outside the public sector are in charge of figuring out the IR35 status of a contract. So, if you’re a contractor working for one of these organisations, it’s up to them to work out whether you fall inside or outside of IR35.
But, if you’re a contractor working for a small-sized business in the private sector, the job of figuring out your IR35 status stays with your intermediary, which is usually your own limited company.
Changes to IR35
There have been some big changes to IR35 over the past few years. In April 2017, IR35 reform in the public sector came into effect, moving the responsibility for figuring out IR35 status from the contractor to the public sector clients. In April 2021, similar changes were brought in for the private sector. These changes mean that the job of figuring out IR35 status now lies with the client, not the contractor.
Conclusion
Getting your head around IR35 can be a bit of a headache, but it’s really important for contractors and freelancers to understand these rules to make sure they’re playing by the book. If you’re not sure about your status, it’s always a good idea to get some professional advice. Remember, each contract needs to be looked at on its own, and your IR35 status might change with different contracts.
Making sure your day-to-day work matches up with your contract is key to working out your IR35 status correctly. High-profile IR35 cases in the media are a stark reminder of the importance of understanding and applying IR35 rules correctly. While IR35 might seem a bit daunting, remember that loads of contractors continue to work successfully within these rules. By understanding what you need to do, making sure your work reflects your contract, and getting the right advice, you can keep on thriving in your freelance or contracting career.
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