A Quick Short Guide to HMRC & IR35
The IR35 remains controversial for many self-employed people, especially after introducing new changes in April 2021. Many contractors are concerned about this issue, but it cannot be easy to understand and follow, so we also understand if this law affects your sanity.
Many people may not think they can beat HMRC regarding IR35 efforts. But this couldn’t be far from the truth, as HMRC has already lost several cases.
What is IR35?
The off-payroll working rules are also known as IR35. These off-payroll working rules may apply if an employee offers services to customers through limited liability companies or other types of intermediaries. The intermediary is usually an employee’s service company, but it can also be a personal service company, an individual, or a partnership.
The rules ensure workers who would have been employees if they did them. Direct customer service pays about the same income tax and social security contribution as an employee. A client is an organization that receives or will receive the services of a contractor. They can be anyone, a client, landlord, or end customer.
Are You A Compliant Under IR35
Generally, IR35 won’t apply if the contract is about services over employment. You can see the contract mention these principles to untangle that-
Supervision, Direction, Control
In order to fall outside of IR35 for a contract, contractors need to offer freedom over the completion of their work.
- A contract may point to the employment, such as a client repeatedly checking the work & giving guidance about completion.
- Plus, if the person is working on additional services after seeing fit. This sort of contract is likely to be inside under IR35.
- This is related to how you complete your work. For instance, if you’re working at a specific time, you’re considered underemployment.
Mutuality of Obligation Known as MOO
It’s a crucial clause in a contract. When the client is obligated to offer work & pay you, this shows an employment contract.
- A contract involves working on project-by-project terms.
- You’re not obligated to complete the task once the project is completed. And, same the client is not obliged to offer the project again.
- This is also considered when you’re working for other clients simultaneously. And if it’s prohibited, then you’re pointing to underemployment.
- The contract can’t be so restricted that you want to work for yourself.
- All the mentioned clauses need to be genuine. You should know which contractor you’re hiring.
- An IR35 states that anyone can offer their services to complete their work. Does the client only need you? Or they broadly need the services.
There are some other criteria that need to be followed when working out IR35-
- Financial risk
- Parcel & part of the company
- The way you got paid
- The intention of the party
- Business on your account
Ensure clarifying the relationship with the hirer before starting the contract by considering all the rules. In addition to not falling under IR35, You should seek expert advice.