What is IR35 and what do you need to do?

As if you don’t have enough to worry about, IR35 comes along and adds to the load. Don’t worry though, we are here to help.

Being a self-employed contractor or freelancer, IR35 is something that definitely affects you and it can be overly complicated for no reason. 

In this article we are going to break down what IR35 is exactly, the impact it can have on you as a self-employed professional, and what you can do to make sure you’ve got everything in order for 2020.

What is IR35

IR35 is legislation that was introduced in 2000, designed to stop workers from claiming to be contractors for tax benefits even when they are working full time at a company. HMRC definitely don’t take kindly to this practice and will charge you a percentage of your unpaid tax based on your special case after doing some investigating.

If you’ve applied for a contractor job in the last decade, you probably noticed that most companies will ask that they pay you through a limited company instead of you personally. This is to avoid them becoming liable should you not pay your tax correctly or act as if they are employing you full-time. 

IR35 rules are designed so that contractors or freelancers working via their own limited companies, who are working similar to how an employee will pay roughly the same amount of tax. HMRC have specialist inspectors who will determine this by going through an employment test based on the specific working practices, rather than any contract.

Even though various changes have been made to IR35 over the years since its creation, successive governments continue to claim there are still a bunch of limited company owners still fraudulently working outside of IR35’s rules. Therefore there are even more amendments happening in April 2020.

What are these changes

After April 2020, the “off-payroll” rules will be extended from the public sector, over to the good old private. This will change the way your employment status is set, as the business you are contracting for will take over this responsibility; whereas up until now you determined your own status. 

This will essentially out any contractor or freelancer being a “fake employee”, as the client they’re working for will have to be cahoots with them for them to carry on this way. As you can imagine this would cause huge ramifications to a business, including all of the contractors that are currently working for them, if HMRC find them to not be non- compliant with the new IR35 rules.

What can you do to make sure you’re covered

There are quite a few things you can do in order to stay ahead of the changes coming next year to IR35, we don’t want to overwhelm you though. Here are 3 we feel are relatively simple and shouldn’t take too long and will definitely get you prepared.

  1. Speak up right now
    Get in contact with the company you are contracting for and ask what they will be doing to get prepared for the changes next April. Speak with other contractors if you know of any that are working for the same company and get everyone in the loop. Don’t wait for anyone else to take action. Your clients will be more inclined to listen if all contractors are mentioning IR35 to them on a daily basis.

  2. Start gathering evidence
    Start stockpiling evidence like you’re a CSI agent that the service you’re providing is a genuine self-employed one. As you will not be setting your own status, if things should go awry, you want to be prepared to present your case to HMRC that you were working inside the rules. Even aspects of your business like letterheads and emails with other clients speaking about completely separate work are good evidence to show on-going proof that you are working within your own limited company.

  3. Get a IR35 contract review
    I would understand if you assume that the company you are doing work for will take care of the IR35 changes correctly, why wouldn’t they? However, it will give you peace of mind if you get a contract review of your dealings with them. Seek a second opinion and ensure that your contract is well inside the IR35 red tape to protect yourself when April hits. 

To Wrap Up

With everything you have going on in terms of work, trying to secure that first mortgage and getting enough free time so you don’t lose your marbles, things like IR35 can really bring you to the end of your tether.

We hope this article helped, but also we are here to talk if you’d like. Book a call here if you’d like to discuss your options and what you can do to stay on top of everything >> https://cfmortgages.co.uk/quote/