If you’re a contractor, then Jessie J was right. It’s not all about the money. Listen carefully and you’ll hear she later tells us that she “just wants to get her IR35 right.”

Sensible girl. Anyone like Jessie who isn’t conventionally employed should be aware of IR35 regulations and how they could affect them.

What’s the purpose of IR35?

IR35 is the nickname for intermediaries legislation, which can apply to your tax and National Insurance contributions if you’re working for someone through an intermediary. IR35 was introduced to tackle the problem of workers who work or provide services to a client through their own Limited Company, partnership or service company, thereby gaining a tax advantage.

If you’re already scratching your head, then let me explain that the government defines an intermediary as an “individual, partnership, or limited company through whom you work for a client (or end-user).” Typical case scenarios for IR35 liability are if the intermediary consists of just one worker providing services to the client, or consists of two directors, or a director and secretary.

The onus for complying with IR35 regulations lies with the intermediary and you may find both CIS and IR35 apply to you, although there are rules in place to ensure tax and NI contributions aren’t paid on the same earnings twice.

It’s confusing – but it’s worth making sure you get it right. If an HMRC enquiry finds you liable for IR35, you’ll have to pay not just any tax or NI contributions owed, but also interest on the overdue amounts. Plus, a penalty if HMRC believe you didn’t “exercise reasonable care in completing your tax and National Insurance contributions returns”.

IR35: Check before HMRC checks

If HMRC do an IR35 compliance check, they will look carefully at the contract under which you’re working and your working practices. So before they come knocking, check where you stand – first by asking yourself: If there was no limited company or partnership acting as an intermediary, would I be regarded as an employee of the client? And has this been true of any of my previous contracts?

If the answer’s yes, then IR35 could well apply to you and your earnings. This means all payments to the ‘intermediary’ will be treated as your employment income, and the intermediary is liable for any tax or NI contributions due.

Still confused about IR35?

I’m not surprised. Even the government admit it’s confusing, and in April 2015 they’re withdrawing their Business Entity tests and sample scenarios intended to help people check their IR35 liability because they are “used so little” and “not serving their intended purpose”.

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About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

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