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Sophie Allaway ACCA

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Sophie Allaway ACCA

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IR35 Tax Legislation

IR35 is the tax legislation that is aimed at identifying individuals who are avoiding paying the tax that they should be. The IR35 legislation challenges those people who supply their services to clients via their own company, often known as a ‘personal service company’, be it a limited company or a limited liability partnership, who, in HMRC, should be classed as ‘disguised employees’. This basically means that HMRC do not recognise the contractor in question as ‘self-employed’ from a taxation perspective and therefore they should be taxed the same way that a permanent employee should be.

In short, IR35 involves applying three principles to determine employment status from the Ready Mixed Concrete case. These are known as the principal ‘tests of employment’:

Control-IconControl: What degree of control does the client have over what, how, when and where the worker completes the work.

IR35-Substitution-iconSubstitution: Is personal service by the user required, or can a worker send another employee in their place?

IR35-Mutuality of obligation- IconMutuality of obligation: Mutuality of obligation is a concept where the employer is obliged to offer work, and the employee is obligated to accept it

What falls outside IR35?

In order to prove someone is outside of IR35, a contractor in the private sector needs to show there is no employment relationship. General factors include:

IR35-Equipment-IconEquipment- If a person works from home using their own computer, they will most likely be outside of IR35 as an employee of a firm will be supplied this equipment from their employer.

Employee-Benefits-IconEmployee benefits including sick pay, holiday and pension contributions also fall outside of the legislation as they don’t generally apply to contractors.

IR35-Financial-risks-iconThe financial risk factor is also an indicator of whether someone is self-employed. If a worker buys their own equipment to complete a job, as they put their own money into it and to cover the running costs, there will be little argument that they are self-employed.

Self-Employed-IconSelf-employed workers are usually paid one-off sums for their work, rather than a fixed wage or salary for ongoing work. This is also a financial risk if a project overruns.

If you operate in this sector then you are in safe hands as we have almost 20 years’ experience of dealing with IR35 contractors and the specific industry requirements.

We can help you with the following:

  • Your client contract
  • HMRC’s status checks
  • Bespoke company formation
  • Company bank account
  • Personal tax compliance and planning
  • Corporate tax compliance and planning
  • VAT registration and advice
  • Payroll and workplace pensions
  • Executive pensions
  • Contractor mortgages
  • Business expense advice
  • Tax representation for enquiries
  • Fee protection for IR35 enquiries.

Does IR35 apply to you?  Our trained cloud integration team will be with you every step of the way as you take your business into the future.

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Related videos:

What is IR35?

IR35 cases studies: Christina Ackroyd and Lorraine Kelly

As specialists in the provision of cloud services, we have developed a business suite of application to help you to run your business with the least effort and administration. This includes full setup, integration with QuickBooks Online, and training for the following applications:

  • Tripcatcher mileage tracking app.
  • Receipt Bank automated expense processing app.
  • QuickBooks Online.
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