IR35 is a UK tax law that aims to prevent “disguised employment” by contractors who operate as employees but are taxed as self-employed individuals. Since the implementation of the new IR35 rules in April 2021, contractors need to know whether they are “inside” or “outside” IR35. In this blog post, we’ll explore how contractors can determine their employment status.
Understanding the Criteria
To determine your employment status, you’ll need to understand the criteria that HM Revenue and Customs (HMRC) use to assess whether you are a contractor or an employee. The key factors that HMRC will consider include:
- Control: Does the client have control over how, when, and where you work?
- Substitution: Are you required to provide the service personally, or can you send someone else in your place?
- Mutuality of Obligation: Is there an ongoing obligation for the client to offer you work, and for you to accept it?
- Other Factors: Other factors such as financial risk, equipment, and integration into the client’s business may also be considered.
Assessing Your Employment Status
To determine your employment status, you’ll need to undertake an assessment of your contract and working practices. You can use HMRC’s online tool, CEST (Check Employment Status for Tax), to assess whether you are inside or outside IR35. However, many experts have criticized the tool, citing its limitations and inaccuracies.
Alternatively, you can use the services of an independent IR35 specialist who can provide a more detailed assessment of your employment status. An IR35 specialist can review your contract and working practices and provide a comprehensive report outlining your status and any areas of risk.
Taking Action If you are deemed to be “inside” IR35, you’ll need to prepare for a reduction in take-home pay, as well as the loss of any employment benefits. You may also be required to pay backdated tax and National Insurance contributions.
To mitigate the impact of the new IR35 rules, you may need to consider restructuring your business or seeking alternative employment arrangements. This could involve working through an umbrella company, which would take care of tax and National Insurance contributions on your behalf.
The new IR35 rules have made it essential for contractors to determine their employment status. By understanding the criteria used to assess employment status and assessing your contract and working practices, you can determine whether you are inside or outside IR35. If you are inside IR35, you’ll need to prepare for a reduction in take-home pay and the loss of employment benefits, as well as the possibility of backdated tax and National Insurance contributions.