The IR35 legislation was introduced by the Chancellor during the 1999 Budget. It puts measures in place to prevent personal service companies, or intermediaries, avoiding the payment of tax and national insurance.
The intermediaries legislation came into force in April 2000. Under the legislation, if HMRC can show that worker is operating as a ‘disguised employee’, they can be forced to pay the tax and national insurance that would have been due if they had been an employee.
Who may be affected by IR35 legislation?
Potentially, anyone who operates using an intermediary, like a personal service company, to provide a service could fall within IR35.
According to the legislation, if you perform a service under the same terms as if you were employed by the client, you could be caught by IR35.
For instance, if you leave employment one day and return to the same employer to perform the same duties as a contractor under the same terms, you could be deemed to be a ‘disguised employee’. Teachers, clerical workers, IT professionals and more can all be affected by the legislation.
The IR35 test
Your employment status will have to be determined to assess whether you are within IR35. There are various factors used by HMRC in a dispute to determine employment status. If you are given specific hours to work, or a set number of hours, you could be deemed to be employed.
Similarly, if you have to carry out the duty yourself rather than being able to hire another party to do the work, you may be viewed as an employee. The number of clients you have at any one time can also be an indication of employment status, as you are more likely to have various contracts at the same time if you are genuinely operating a company.
If equipment is provided by the client, you may be within IR35. Consider how you are paid, as being paid a regular weekly or monthly amount may be viewed as being employed. If you decide how and when a contract will be fulfilled, provide all the tools required and are free to hire someone else to do the work, you are probably classed as being outside the IR35 legislation.
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