Does IR35 apply to me?
22nd January 2016
IR35 (a.k.a intermediaries legislation) is a set of rules that clearly defines what constitutes and differentiates an employee as opposed to a contractor.
The purpose is to combat tax avoidance where declared self-employed individuals are working for a single employer.
More specifically it is when an individual could be considered an employee but benefits from tax measures which are for people who are genuinely self-employed.
Changes to IR35 were expected to be announced in George Osborne’s 2015 Autumn Statement. However, nothing was mentioned and no changes are currently planned. This omission surprised the contracting industry especially as the changes to dividends tax are likely to hit contractors hard.
When does IR35 not apply?
There are a number of circumstances when IR35 will not apply to a contractor.
Clients also have IR35 responsibilities which they must legally fulfil. If a contractor is engaged by a client via the contractor’s intermediary then the client is responsible for the contractor's tax and national insurance contributions. If an individual is effectively engaged directly by the client then the client is responsible for paying them via PAYE.
If a contractor provides their services to a client through a third party (such as an employment agency) and can be considered an employee of neither then agency rules rather than IR35 apply. If the agency is based outside the UK then the client may have to operate a PAYE system for the contractor.
A contractor providing services to a client via a third party managed services company is also not eligible for IR35 and has to comply with managed services company legislation.
When does IR35 apply?
IR35 applies to a contractor if all of the following criteria are met:
- the contractor personally performs a service for another person or business or is obliged to do so
- the services are provided via an intermediary like a limited company or partnership not subject to managed service company legislation
- the contractor’s services are supplied as an ‘office holder’ of the client. An office holder is defined as someone appointed to work for a company but who has no contract and does not receive regular payments from the client
- the IR35 conditions of liability for the intermediary used by the contractor are met
- if the individual is a subcontractor in the construction industry.
If you are a contractor requiring advice on IR35 eligibility and benefits and alternative sources of tax relief call us on 0117 305 2600 or fill in our contact form.