Are you a contractor struggling to get your head around IR35? If the answer is yes, you are not alone.
According to recent survey by Harvey Nash: 90% of contractors admit post-IR35 reform stress.
Since the changes to IR35 legislation, in April 17, many Public Sector projects have slowed down or stopped. The primary cause is the complications IR35 is causing, consequently making it difficult to hire contractors. This is not just my opinion. Many public sector contractors and employers are voicing their views on the negative effects of the IR35 roll out. For many contractors public sector work is their bread and butter and must seek help to keep working in their area of expertise.
Before taking on a public sector contract you need to understand IR35 contractor status here’s a Quick IR35 guide to get you started:
A quick guide to IR35 status
What is IR35?
IR35 is an ‘intermediary tax’ rule that applies to contractors providing a professional service to the client (organisation) as a Partnership or Limited Company.
How do I determine my contractor status?
Ask yourself: ‘Are you an employee posing as a contractor?
How can I determine my contractor status?
Check your contractor status against 4 points:
- The level of risk you undertake is high for example if you are not paid by supplier you are directly affected financially. Whereas an employee faces no risk and is paid no matter what.
- The level of control of service delivery is in your favour. Whereas and employee is told what time to work, service delivery deadlines, fixed breaks and notice period.
- The equipment you use is your own. Whereas an employee uses company resources.
- Your ’employer’ must find and offer you work and you must carry out that work personally
What if I fail to report myself?
The implications are severe as you would now be liable to tax and NIC. Reduced expenses claims you have not budgeted for are swiftly followed up with large tax bill.
The changes to the tax rules only affect public sector contractors at this stage, although the last government did not rule out extending the scope of the rules to the private sector.
Business tax tip: When you draft or sign off your next contract include a clause stating someone can take over your work should you become sick or suddenly end the contract. These items must be real however and not just words in the contract. This differentiates you from an employee and is recognised under IR35.
Without a doubt the IR35 rules are complex. Since further changes came into force last year it’s increasingly becoming a headache for contractors. What’s more the public sector bodies relying on contractors to keep projects moving need input from HMRC to make the hiring process simpler to get projects back on track, ASAP.
HRMC is ruthlessly pursuing any contractors they view as avoiding paying the appropriate taxes. However, it has recently come to light that HMRC pre-test launch has not run smoothly. Rumours abound among recruiters that HMRC’s IR35 tool is not accurate which will result in misleading calculations and contractors paying wrong amount of tax.
Still unclear about your contractor status? Talk to a tax expert to discuss contracts past and future to determine a better way of working and framing your contract. Here’s why:
- Make you more attractive and available for Public Sector contracts
- Make your life simpler and avoid unexpected fines or tax bills.