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IR35 Changes for Contractors

Wed 2nd Oct 2019
There are changes to the IR35 legislation that come into effect on the 6th April 2020 for private sector contractors that will transfer responsibility from contractors to large and medium companies to assess IR35. The 2020 reform will bring private sector IR35 in line with the public sector, where the reform was implemented in 2017. This has been designed to assess whether a contractor is a genuine contractor rather than a ‘disguised’ employee, for the purposes of paying tax. Essentially IR35 affects all contractors who do not meet HMRC's definition of 'self-employment'.

In it’s most simple terms, this occurs when someone who would be an employee of a client but who operates through an intermediary vehicle such as personal services company (PSC) to avoid income taxes and manipulate NI contributions.

Are you 'Self Employed'?
The first and most important point is to establish whether you are 'employed' or 'self employed' under HMRC’s terms.
‘A person is self-employed if they run their business for themselves and take responsibility for its success or failure.
Self-employed workers aren’t paid through PAYE, and they don’t have the employment rights and responsibilities of employees.’

It can be complicated to determine where you stand with your employment status, here are some of the factors that HMRC will take into consideration when running an IR35 test. However these are only a few and there are many more that would need to be considered. Take these and others into consideration so you can ensure your relationship with your hirer has complete clarity before you begin work.

How you’re paid
Self-employed contract workers tend to be paid on a project-by-project basis, typically when work reaches a specific milestone or is completed.

Running a business of your own accord
Having a website, dedicated office space and employees all demonstrate that you are running a business of your own accord. This reinforces that you’re operating as a self-employed contractor and not offering the services you provide as an employee.

The equipment you use
If a client provides you with equipment to complete a contract, and you don’t use your own, this could result in HMRC viewing you as a disguised employee.

One of the benefits of being a self-employed contractor is that you can work for more than one client at once. However, if you’re deemed to be working exclusively for one client only over a prolonged period of time, HMRC may be able to view this as an employee-employer relationship, meaning you fall within IR35.

When it comes to IR35 there are a few options available to you. It’s important to assess each role and not make a blanket decision then once this has been done then you can determine what options are most suitable for you to you. 2020 Accountancy have a partnership with IR35 specialist Larsen Howie who will be more than happy to assist you with your IR35 status review and advice.

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