If you are working or planning to work as a contractor, it’s imperative that you understand IR35 and whether the contract you are undertaking leads you to fall either inside or outside its remit.
Put simply, IR35 is a set of rules which affect how much tax and National Insurance you pay if you’re contracted to work for a client through an intermediary such as your own limited company or an employment agency.
If HMRC believe that you are working inside IR35, then the intermediary (your limited company, for example) has to deduct PAYE and NICs at source on the payments it makes to you. In a nutshell, this means you are likely to find yourself with a higher tax bill and less take-home pay.
For some contractors who are deemed to be working within IR35, especially those who are subject to new rules in the public sector, the most financially favourable option may be to join an umbrella company.
Assessing your IR35 status
The test for your IR35 status revolves around the issue of Supervision, Direction and Control (SDC). If the level of SDC relating to your role means you are effectively operating as an employee, then IR35 may well apply to you.
Here are some helpful examples which illustrate roles where IR35 would and would not apply.
Thomas, building site labourer
Thomas works as a labourer on a building site. He has to work set hours and has little autonomy over his time-keeping or the work he undertakes each day. He is also supplied with the materials to do his job. As a result, Thomas’s role would be assessed as working within IR35.
Becky, project manager
Becky works as a project manager and is not subject to supervision, direction or control, she can determine when she works and how she completes her tasks. As a result, Becky’s role would be assessed as working outside IR35 rules.
What to do if you’re subject to IR35
If you think that your contract is within the remit of IR35 it’s advisable to speak to a specialist contractor accountant at Crest Plus for tailored advice.
It may be that working for an Umbrella company is the best option for you. If so the umbrella company will calculate and deduct PAYE , tax and all other financial liabilities. In return you will be entitled to receive employment benefits such as holiday pay and sick pay. You will also benefit from ‘continuous employment’ while working as a contractor which can be helpful when trying to secure a mortgage or other loans. Find out more about Umbrella Plus and all the benefits you can enjoy.
If you are thinking about setting up a Limited Company or PSC, in order to assess the financial implications, you’ll need to consider whether you are subject to IR35 legislation for each contract you undertake.
We provide a comprehensive explanation about what constitutes Supervision, Direction and Control. However, it can be difficult in some circumstances to assess whether the extent to which you are subject to SDC means you fall within IR35 rules which is why our team of specialist contractor accountants will be happy to assess your particular circumstances and advise you accordingly.
At Crest Plus we offer unlimited IR35 reviews to ensure that you are able to maximise your take home pay whilst staying compliant. This will help alleviate any worries you may have about paying the correct tax.
Much of the assessment around IR35 relates to the degree of direction, control and supervision involved in your role. For example, IR35 could apply if:
- you are instructed or required to perform the work in a particular way
- you manage your client’s staff and are involved in duties such as appraisals, disciplinary procedures or leave approval
- you have to request leave and are not free to choose what hours you work
- you use tools and equipment that belong to the client
- your client could terminate your contract with short notice.
Please get in touch with our specialist contractor accountants at Crest Plus on 01244 684700 or complete the form below and we will contact you.
For more information, please read our Guide to Successful Contracting.