IR35 remains essentially unchanged although a new and important development takes effect from 6th April 2017.
Reference our previous blog on this topic: www.best4business.com/clarification-on-ir35
The change only affects individuals that are engaged by public sector entities; from April 2017, as confirmed in the 2016 Autumn Statement, IR35 status will be determined by the client rather than the contractor business. So if a client decides IR35 does apply, the contractor business will be taxed at source through the Real Time Information (RTI) system (exactly as if it were an employee). Note however that the employment status of any such contractors will remain unchanged (so that they will not receive any employee rights and benefits even if they are suffering tax and NI like an employee).
For client engagements not in the public sector, there is no change to the existing way of working, in that the contractor business decides whether or not it is within the scope of the ‘Intermediaries Legislation’.
Further detail on IR35
IR35 remains a relatively complicated and hard-to-understand issue for contractors, their clients and professional advisors alike — the fundamental rules on it have not changed but case law since its introduction has helped clarify many of the parameters within which it may or may not apply.
HMRC provides much advice on the subject, starting here: www.gov.uk/guidance/ir35-find-out-if-it-applies
The Employment Status Manual is also a useful reference, found here. Worth noting that this guidance hasn’t been altered since July 2010.
Does it apply to you as a Contractor or a Client?
The first and most important point is to establish whether you are ’employed’ or ‘self-employed’ in the context of HMRC’s terms. To this end HMRC have provided a useful step-by-step tool that you can use to help determine your status (as either a contractor business, a client receiving services, or an agency employing a contractor worker) here.
As with most of the advice that is available on this subject, it is made clear that this tool cannot be relied upon to definitively assert your status one way or the other — it is intended as a guide only. For certainty you should seek the advice of your accountant or tax adviser (in the first instance otherwise seek out an accountant or tax adviser that can provide assurance).
So, what are your options?
- if you are operating outside of IR35 be ready to demonstrate that you are what you say you are, you have considered the legislation and have decided it does not apply to your business;
- IR35 does not apply if you work overseas, although if you do you should seek professional advice on your personal tax status while working outside the UK, and on your income while away. There are many more pitfalls to working abroad than you might think, and poor planning and/or management can cost dearly;
- consider going permanent — for your client if you fail the test and are not planning to change the circumstances of your work.
Whatever you do, please don’t do nothing about it at all — whether deliberate or not, that is likely to not end well.