Since 2000, the UK government has been voracious on the issue of ‘disguised employment’ i.e. contractors who work for a single client full-time, yet who manage to evade typical bands of employment tax. IR35, an amendment to HMRC’s categorisation of our work status, was rolled out nationwide; if you’re within its rules, you don’t count as a self-employed professional.
This was 17 years ago, and contractors have become adept at managing their contracts to protect their take-home pay. But things are changing once again, so let’s remind you of some IR35 standards, and what else is on the horizon…
1. Control is a big yardstick
One of the first things a contractor should examine in their potential client agreements – indeed, they may demand it from the off – is a few clauses stating how little direct control the client has over them.
HMRC will class someone as an IR35 conformist if they have set working hours, a need to sign-in every day, and narrow leeway over how a job can be performed. How much freedom a contractor has been granted will largely determine their tax status.
2. HMRC conducts random reviews
There’s a one-in-a-thousand chance that the government will pluck your tax return at random, and commit to a full investigation. They’ll review your submission, contracts and any other relevant documentation to make sure you aren’t bending the rules.
It isn’t as precise as an ‘aspect enquiry’, whereby HMRC will demand all the evidence for a given, smaller period, but it’s designed to flag up potentially unstable statuses in which contractors aren’t risking any capital or finding their own customers.
3. Public sector rules are changing
Come April 2017, clients in the public sector will have to pay the tax and NI contributions of the worker on their behalf, should they fall within IR35.
It’s going to prevent public sector contractors from achieving a lower tax threshold based on their own self-assessment – for example, anyone earning over £43,000 a year will have to fork out 40% of their wages, as opposed to the lower tax bracket within a limited company. This will surely invade the private sector too once the results start to accrue.
4. Subcontractors are a saving grace
Another qualifier for being within/outside of IR35 rules is the extent to which you can hire a subcontractor to do aspects of the project. Again, this pulls control back in your direction – if a contractor doesn’t have to be on-site every second of the day, they are their own boss, and achieve relevant status as such.
Some contracts stipulate a written agreement for that eventuality: you may want to bring on help, or send someone in your place, but the client has to be assured of their skills and reliability. As a result, security is achieved all round, both for the contractor and their customer.
The peculiarities of IR35 aren’t going to disperse any time soon; actually, they’ll be getting more complicated as freelance and contractor work continues to climb in the UK. To prevent yourself being stung by HMRC’s guidelines, reviews and penalties, why not hire an accountancy firm to do all the knotty stuff for you? Contact Bright Ideas to safeguard your IR35 status on every new project…
