Managing self-employment and complying with the IR35 rules and regulations can be quite challenging even for the most experienced HR people. Keeping on top on all areas of the Law and compliance needs constant review as these areas are always changing.
IR35 is a piece of tax legislation that was announced in 1999, which took effect from April 2000. The legislation means that the HM Revenue & Customs (HMRC) can tax some contractors as though they are employees of their clients. Any contractors caught by breaching IR35 will pay significantly more tax thus reducing their take home pay by up to 25%.
Any contractor who does not meet the IR35 guidelines set by HMRC is likely to fall under disguise of self-employment and classed as employees. If the contractor is found to be in breach the end result will mean an increased tax and N.I. liability and this will prevent the contractor companies from retaining profits to grow their business.
When a business hires a contract worker they could do it via a payroll (Pay As You Earn) also known as PAYE or, via self-employment. The business could:
Many UK businesses hire contract workers either on a:
If the business opted to hire self-employed workers then those businesses must ensure these workers are genuinely self-employed. Key questions to ask yourself is, before hiring a self-employed worker:
When a worker is issued a contract has the following areas been included in the agreement:
If any worker contract does not cover the above areas then the contract could be deemed as being non-compliant. HMRC will then look at the contracts that you have agreed with your clients and if these contracts do not cover what is agreed in the Contract for Services agreement for your workers, then you are likely to be challenged under IR35.
If you are not sure if your business is IR35 compliant, did you know you can take a free comprehensive IR35 test once you registered with the ComTracker. This test is free and will advise you if your business is likely to fail an IR35 inspection. Sign up for my free IR35 test.