IR35 and writers

A Guide to IR35 – Does It Affect Me? Introduction – what is IR35?

The term IR35 came from the name of the press release from HM Customs & Revenue when they announced their intent to introduce legislation to address “disguised employment”.

What is disguised employment ?

This term is used when your relationship with the end client is similar to that of an employee. Its key impact is that HMRC will examine your agreement with the end client, and may consider your earnings to be salary. This means that tax and national insurance will be payable.

When does it apply?

Each contract is viewed on its own merit so it is important that you consider each contract and inform us of your IR35 status for each one. We can provide guidelines for assessing whether IR35 applies but the responsibility for ensuring that the correct status is applied lies with the contractor who understands the true reality of the relationship they have with the end client.

What are the indicators of disguised employment?

The contract is key and should reflect the reality of the situation and the relationship between contractor and end client. Within the contract, there should be the following features which suggest self employment rather than employment (and within IR35)

  • Right of substitution – you have the right to send a substitution to undertake the work if you are not available
  • Place and hours of work – are at your choosing
  • Price – ideally should be a fixed price so that you have the risk of additional work if there are problems rather than working and charging by the hour
  • You provide your own kit rather than use the clients
  • You have freedom to control the work you do and are not under the direct supervision of the client What do I need to do?

The IR35 status of each contract is a matter of fact rather than choice. It is important that the correct decision is made to avoid penalties and backdating of tax owed to HMRC later on. Each contractor is responsible for determining the nature of their contract with the end client for each assignment.

What if I have more than one client/contract?

A common misconception is that IR35 only applies in situations where you have one client or customer. This is not necessarily the case. You could have the situation where one of your contracts is within IR35 and one is outside. It is important that each contract is reviewed on it’s own merit.

I’m going to opt out of IR35!

There is no such thing as deciding to opt in or out. Your tax position is largely a matter of fact and determined by the nature of your contract and working relationship with the end client. You are responsible for your own tax affairs. This means that you will bear the costs of unpaid tax and penalties in the event of a HMRC investigation into your employment status.

I’m OK – I have IR35 insurance!

Read the small print! Most insurance policies around IR35 and tax investigations will cover the cost of an enquiry and any penalties/unpaid taxes unless you knew or ought reasonably to have known that you were operating in a manner which was likely to give rise to a claim. This means you will not be covered in situations where it is clear that IR35 applies and you have chosen to ignore that fact. If you are operating within IR35, by using an umbrella company, you will have peace of mind that your earnings are being managed in a tax compliant manner.

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