A Contractor’s Guide to IR35

Introduction

The ‘Intermediaries Legislation’ also known as IR35 was introduced in April

2000, contrary to popular belief that it is a new legislation being introduced.
The idea of the legislation is to tackle the problem of a ‘disguised employee’.

A ‘disguised employee’ is essentially an employee

who works under the title of a self-employed
contractor, using a limited company in order to
lower their tax bill, however the contractor operates
under the same guidelines and restrictions as a
permanent employee. The aim of IR35 is to
determine whether a contractor is correctly working
as being self-employed or should be a permanent
employee.

The IR35 legislation was introduced into the public

sector in 2017 with great effect, contractors
deemed to be inside of IR35 have the option of
being paid through the agency, an umbrella
company or becoming a permanent employee of
the end client. Due to the success in the public
sector, HMRC have decided to take the same
approach with the private sector, looking to
enforce the legislation in April 2021.

From HMRC’s standpoint, by capturing the

‘disguised employee’ and making incorrect
limited companies operate through a PAYE
system, the tax and NI contributions will
increase, generating more revenue and
showing a true reflection of the country’s Tax
and NI revenue streams.

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 Am I inside or outside IR35?

2.1. Supervision, Direction and Control

Most contractors are left confused over IR35

and unsure where they stand. With the lack
of resources available and conflicting ideas
this is understandable. To make life easy, we
advise to look at three main areas, also known
as SDC (Supervision, Direction and Control):

Supervision -Are you supervised whilst carrying out

the responsibilities of your role?

Direction - Are you able to work of your own accord?

Control –Are you given the freedom to carry out your

duties how you see fit, or do take guidance from a
senior member of staff?

As you can see from the above definitions, if you report to a member of staff
and are not able to carry out your duties in a free manner without the
guidance of senior members, you’re likely to be inside of IR35.
In order to determine your position correctly you should complete an SDC
questionnaire.

2.2. Substitution and Obligation

Other means to determine your position with IR35

is substitution and obligation. If you can easily be
replaced regarding your role or the end client has
a responsibility or obligation to provide work for
you, the likelihood is that you are inside IR35.

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How does this affect contractors?

It’s not uncommon for contractors to

operate through a limited company when
government guidelines would deem them
inside of IR35. If this is you, you should seek
professional advice immediately as you
would be deemed as breaking the law and
could face a penalty in the form of a fine or
imprisonment.

Operating inside of IR35 will result in a loss

of earnings, the limited company benefits
are lost and Tax and NI contributions will be
made on a weekly or monthly basis.

Many contractors chose to operate via an

Umbrella company, the reason for this is
usually because administrative costs and
burden of a limited company are lowered
while still being viewed as an employee in
the eyes of HMRC.

Contact us and Refer a Friend

If you’d like to speak to one of our Umbrella advisors, or you have a friend
that could benefit from our services, then get in touch.

We also offer a Refer a Friend bonus scheme for anyone that signs up based
on your referral.

Call Us: 020 7183 1699

Email Us: leads@goddingtonpierce.co.uk