Introduced back on the 6th of April 2000, the IR35 rules were put in place to combat tax avoidance, specifcally targeting workers withing the IT industry, though not limited to a single industry. In fact these rules could apply to any worker that provides their services through a personal service company or other form of intermediary.
Before attempting to decide whether or not these rules may affect you and your business, below we will discuss the conditions that must be met to consider yourself either Employed or Self-Employed;
According to HMRC you are an Employee if:
– You are required to work regularly unless on leave (e.g. holiday, sick leave, maternity/paternity, shared parental leave.)
– You are required to do a minimum number of hours, and expect to be paid for the time you work.
– A manager or Supervisor is responsible for your workload, deciding when and how work should be completed.
– Someone else cannot be sent to do your work.
– The business deducts tax and NI (National Insurance) Contributions from your wages.
– You recieve holiday pay
– You are entitled to statutory sick pay and maternity or paternity pay.
– You can join the business’s pension scheme.
– The business’s disciplinary and grievance procedures apply to you.
– You work at the business premises or at an address specified by the business.
– Your contract sets out a redundancy procedure.
– The business provides the materials, tools and equipment for their work.
– You only work for the business, or if you have another job, it is completely different from your work within the business.
– Your contract, statement of terms and conditions or offer letter (which may be described as an ‘employment contract’) use terms like ‘employer’ and ‘employee’.
If you can answer ‘yes’ to most of the conditions above, despite an intermediary, it is likely that there is an underlying employee to employer relationship in place and therefore triggers the application of the IR35 Ruleset, the reverse is also true, if the answer to most of these conditions was ‘no’ then it is likely that there is no such relations ship and therefore the IR35 do not apply.
According to HMRC you are Self-Employed if:
– You are in business for you/yourselves and are responsible for the success or failure of your business and can make a profit or a loss;
– You can decide what work you do and when, where or how it is completed.
– You can hire someone to perform the work.
– You are responsible for fixing unsatisfactory work in your own time.
– You agree a fixed price for your work with your engager – it doesn’t depend on how long it takes them to perform the job.
– You use your own money to buy business assets, cover running costs and provide the tools and equipment that is necessary.
– You can work for more that one client.
When attempting to remain outside the rules as governed by IR35, specifically when using an intermediary, the relationship should be structured as per the rules above.
Therefore whenever working through intermediaries to remain self-employed ensure that you fully understand the differences between the relationships with your client and yourself, else the IR35 rules may apply to you and result in unforseen charges.