IR35 is one of the most important pieces of legislation that you need to be aware of. A lot of people find it frustrating since it was introduced. But what is ir35? What does it do and how does it affect you as a contractor? Basically, it is a tax on anyone whose line of work is limited in their own company but is considered an employee when they accept work for a client. If you provide services to one or more clients through your own limited company, but you are considered an employee by your clients, then the IR35 is something you have to deal with.
Here are four things you always wanted to know about the IR35.
- In order to check if you are considered an employee, you can take business entity tests through HMRC.
With these tests, you need to assess yourself by giving yourself a score. You will also need to keep an evidence of your answers on these tests. One of the things that HMRC would check into is your business plan changes as well as documents and improvement. They will look into this and set the scores for each test. The lower score you have, the more chances IR35 will apply to you. Moreover, they most importantly check who has control over your work. So if your client sets the rules on when, where, and how you do your work, you will most likely be affected with IR35.
- If you are getting employee benefits, then you will fall within IR35.
If you are in an employee position, you will most likely get employee benefits which mean you can be affected with the IR35. If you don’t want to be within this, you need to be seen as a sole contractor of a limited company and you don’t receive any employee benefits from companies you are contracting for. For this reason, you can’t accept any holiday pay, training courses, sick pay, and whatnots. Steer clear of these things if you don’t want to be falling within IR35.
- If you have a working obligation with your client, it will also be taken into consideration.
One big factor that the HMRC will also look is if your client has the right to dismiss your contract at a fixed period of time or requires you to a certain period before dismissal then you can be considered an employee and will most likely also fall into IR35.
- You will no longer qualify for any limited company expenses if you get caught by IR35.
If you are caught by IR35, any money that had been earning or will earn in the future is liable for tax. Moreover, any previous contracts you may have will also be investigated to check to see if there are other infringements. This can ultimately lead to a large tax bill. So while it is early, make sure that you look into this so you will save effort and time in the future.