The IR35 is a combined of legislation that is designed to asses whether a contractor is a genuine contractor or an employee for tax purposes. Contractors that work through their limited company enjoy many tax perks, such as claiming expenses against tax, which cannot be enjoyed as an exclusive employee to a company. Contractors also do not have access to many of the perks of employment, such as holiday and sick pay.
In order to combat the previously undefined are of contractors for tax purposes, the HMRC introduced the IR35, aka the ‘off-payroll working rules’. If a contractor falls into the realm of the IR35, they are classed as a ‘deemed employee’ and so will be treated as an employee for tax purposes.
Generally speaking, a contractor will not be regarded as a deemed employee, if the drawn contract is for services rather than employment. This can be determined partially by the following:
Supervision, direction, control –how much say the hiring business has over how you complete your work.
Substitution –the contractor should have the ability to employ another worker in to complete the contract.
Mutuality of obligation (MOO) – There should not be an obligation from the company to offer work to the contractor.
Other aspects to consider include:
Equipment- If the equipment being used belongs to the business and not contractor, you may be considered a deemed employee.
Financial risk- a higher level of financial risk and responsibility may be expected from a contractor.
Pay- contractors would typically be paid on a project-by-project basis, rather than monthly salary style payment etc.
Exclusivity- Typically it would be expected that there is no exclusivity for contractors.