What Is IR35?
IR35 is the name given to tax legislation introduced in the Finance Act 2000, aimed at identifying contractors who through their limited company are avoiding paying the income tax and national insurance that HMRC deems they should be.
IR35 is the name given to tax legislation introduced in the Finance Act 2000, aimed at identifying contractors who through their limited company are avoiding paying the income tax and national insurance that HMRC deems they should be. HMRC’s view at the time was that a large number of contractors were treating themselves as ‘self-employed’ where in reality; they should have been treated as employees of their client.
HMRC look at a series of tests to determine whether the contractor in actual fact is a disguised employee of his client, and therefore from a taxation perspective should be taxed in the same way as a general employee.
If caught by this legislation, there is potentially a huge impact on a contractor in terms of unpaid taxation and associated penalties and interest, with HMRC being entitled to retrospectively collect these.
It is important to remember that there are no hard and fast rules in relation to IR35 and no definitions as to whether you are an independent contractor or employee. Case law has been established over many years which help to define the terms, and HMRC has provided a Business Entity Test online to help contractors and their advisors.
These status questions have been in place since May 2012 and are available online via HMRC. The 12 questions are based around key status indicators, and each answer gives a score which eventually produces a risk assessment based on HMRC’s weighting given on each question.
HMRC will also look at the circumstances of the actual relationship between the parties, and not just the answers to the Business Entity Test. Typically, contractors have used the following main points as an indicator as to their status:
- Personal Service – is the engagement for a specific person? Can you send a substitute instead of that person?
- Control – is there a “Master & Servant” relationship in respect of how, when and where the work is carried out?
- Mutuality of obligation – is there an expectation for the client to provide further paid work and for the contractor to continue to produce more work?
What can Green Lantern do to help?
The Green Lantern approach is always safety first, and we work with Professional Passport to ensure that all of our procedures are compliant with the latest legislation and guidance. We also work with highly qualified IR35 experts who can provide all business owners working with us a full review of their circumstances for each new assignment. Following on from this, our accountants can assist you with deciding with payment options are best for you, and on an assignment by assignment basis can provide you with advice and assurance.
It is also worth remembering that IR35 does not apply to contractors working through an umbrella company, and Green Lantern can provide this option too if you would prefer to operate in this way.
Call today for expert advice:
020 7164 2116