How to Determine Your IR35 Status
Posted on 10th October 2023
As an off-payroll worker in the UK, you will have heard about the intermediaries legislation known as IR35 and know that it is important to be able to determine if a contract you are considering is inside or outside of the scope of the IR35 legislation. However, navigating the complex rules and regulations can be challenging for even the most experienced freelancer. If a contractor is working outside IR35 and HMRC has reason to question this, it may open an IR35 enquiry. HMRC can investigate your arrangements at any time, which has the potential to be time-consuming, costly and stressful. This may include a review of tax returns from the previous year. It could also go back up to six years if careless or negligent behaviour is suspected.
There are some main criteria for determining your status, including the three main principles used by HMRC to decide whether a worker is inside or outside of IR35: supervision, direction, and control. Understanding these, as well as utilising tools and experts, can help you ensure you are remaining compliant regardless of if you are working for a large firm or a small business.
The Criteria for Determining Your IR35 Status
When operating as a freelancer, through a limited company or as a sole trader, it is important to understand the key criteria involved in determining your IR35 status.
The Main Principles to Decide IR35 Status
When determining your IR35 status, it is essential to consider the three main principles of supervision, direction, and control. These principles play a crucial role in assessing your level of control over how, when, and where you complete your work.
Supervision regards the extent that your end client oversees your work and controls quality and design of the the end product. If you are being held to standards by someone overseeing your progress and output then it is likely you will fail this test and be determined too be operating inside the scope of IR35.
Direction refers to how much input is received from you by your end client while you undertake the work you are contracted for. Independent contractors should ideally be engaged to provide services the client's employees cannot do. It is therefore expected that independent contractors should be able to carry out the assignment without any training from the client, except for a reasonable induction and any health and safety briefings required.
Finally, control is essentially to what extent are you treated as an external contractor employed to undertake a predetermined task. Your end client must not change around your work and should not move you from task to task based off their priorities. Using your own equipment, not working on site and setting your own hours can all help prove there is no control. Maintaining full autonomy from the end client is vital to ensuring you qualify as outside the scope of IR35.
Other Factors That Help in Determining IR35 Status
The Right to Provide a Substitute
The right of substitution is critical as proof of being outside IR35. As an independent contractor you are only obligated to present the end product as agreed upon between you and your end client, this does not necessarily mean you must carry out the work yourself. Having proof in your contract that you have the right to provide a substitute can greatly help you in proving your status as outside the scope of IR35.
Beware of fettered clauses however, if your contract says you have the right to provide a substitute, subject to the prior approval of management, then you probably do not have the right to provide a substitute at all. This will bring into doubt your status as an independent contractor and therefore place you inside the scope of IR35.
No Mutuality of Obligation (MOO)
This means that you do not have to work, and your end client does not have to provide you with work. Open-ended engagements with no specific link to a project that includes moving between roles and assignments demonstrates mutuality of obligation and therefore would be damaging to your argument of being an independent contractor.
Check Employment Status for Tax Tool
HM Revenue and Customs (HMRC) have provided a tool to provide a status assessment for self-employed individuals. The Check Employment Status for Tax (CEST) tool can provide clarity and help you in determining your tax status. HMRC also stands by the verdict returned by the tool meaning that, provided you answer all questions truthfully, you can determine your status.
If you are beginning to work off-payroll, or are about to undertake a new contract. The CEST tool is a good place to start determining your IR35 status. If you are still unclear about the determination that CEST gives you or would like further clarification over a contract then seeking specialist advice from an accountant is advisable.
HMRC recently migrated their tool to a new platform in order to better serve self-employed contractors and businesses alike. The updates allow for a more seamless process and will be further updated following the supreme court's ruling in the HMRC vs PGMOL case that is currently being contested.
The Benefits of Employing an Accountant for IR35 Guidance
Employing an accountant for IR35 guidance can provide valuable assistance in navigating the complexities of this tax legislation. Accounting professionals have the expertise and qualifications to analyse your working practices and determine your IR35 status.
For those working through personal service companies an accountant can also ensure you are set up to minimise your income tax liability and get the most out of self-employment.
How Can Sherwin Currid help with IR35?
Sherwin Currid provides expert assistance in navigating the complexities of IR35 for contractors across a wide array of sectors meaning we have experience with a variety of contracts and situations. Our freelancer clients are offered contract reviews where one of our specialist contractor accountants will review their contracts and offer guidance.
We also provide contractors with full service accountancy packages including year end accounts, self assessment filings, professional advice, PAYE registration and VAT services. Furthermore, all of our clients are given access to cloud accounting software that can be used to minimse the time spent on bookkeeping as well as simplifying the raising of invoices or reclaiming VAT from expenses.
With over 15 years of experience working with contractors we understand the intricacies of freelance work as well as IR35 legislation. We are here to simplify the process for you and ensure you can spend more time focusing on servicing your end-client.
Get Expert Help With Your IR35 Status from Sherwin Currid.
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