Understanding IR35 for Contractors

What is IR35?

IR35, or intermediaries legislation, is a notoriously complicated legislation to grasp, even with HMRC’s own guidance…

Luckily we at MTD can help break this down for you to help ensure you are paying an accurate reflection of tax based on your employment situation, thanks to IR35.

If you provide your services to a client through a Limited Company, you’ll need to ensure this doesn’t appear as you are working as an employee of the client as the amount you pay in tax would differ – this is particularly of interest for contractors using a Limited Company.

IR35 was originally introduced to prevent employees reaping tax benefits by operating as a contractor – by taking a low salary and high dividends effectively making their take-home pay higher than as a full-time employee. With IR35 you would pay the same Income Tax and National Insurance Contributions as if you were directly employed rather than contracted to work through your Limited Company.

Does IR35 affect me?

What you must consider is whether you have control and direction over your work, or if you have an employer/employee relationship.

Here are a few things to consider:

• Control – the degree of control held by your end client over what, where, when and how your work is completed – as a contractor you would usually work to a comprehensive job specification.
• Substitution – do you have to perform the work yourself, or can you send someone else in your place? – a contractor could send in a substitute or reassign the work to someone else
• Mutuality of Obligation – are you obliged to accept work from your client, and is your client obliged to offer you work? – a contractor must work project to project and not obligated to continue working for the client after the task is deemed complete.

If any one of the above principles does not apply then you should not be affected by the rules surrounding IR35 as your relationship with the client is of contracting for services, rather than a contract of employment.

Additional factors to consider:

• Payments – a contractor would usually receive payment on completion rather than at regular intervals like an employee
• Equipment – a contractor would usually use their own equipment
• Other work – are you obliged to only have one client at a time, this would signal that you are an employee rather than a contractor

If you are working as a contractor and are worried about IR35, get in touch with us at MTD -we’re here to help!