24th August 2021 / Tax

How might IR35 and Off-Payroll Working affect me or my business?

The rules and criteria for Off-Payroll working or IR35 can sometimes seem confusing. This is especially true if you have been employed to provide a service to a client but the initial scope has changed or you find them overseeing your work or dictating how and when you work. In these sorts of cases, it is important that you familiarise yourself with the processes to avoid significant penalties.

What is off-payroll working?

The rules regarding off-payroll working are to make sure that a worker who could have been classed as an employee pays broadly the same Income Tax and National Insurance contributions as an employee. It is sometimes called IR35.

There are three main principles that are considered for determining employment status. They are known as the principle “tests of employment” – Control, Substitution and Mutuality of Obligation.

Am I an Employee or not?

Firstly, ask yourself ‘Do I have autonomy over the work I am carrying out?’ This can be a good way of gauging whether the criteria apply. This is the ‘Control’ part of the test.

If you, as a worker, supply services to a firm through your own business either as a director of a limited company or as a self-employed person and the firm you are contracted to includes the following elements in your contract:

  • When and how you work, your start and finish times and the days you are required to work.

  • Overseeing your work to an excessive degree and provides guidance on how to complete it.

  • Gives you different work to that contracted as they see fit.

Then you are probably working inside IR35 regulations and you should be treated as an employee for Income Tax and National Insurance contributions.

But, if your contract allows you to supply other people to support your work and doesn’t offer any restrictions on the calibre of the individual, aside from having the necessary skill-set for the task, then that would probably fall outside of IR35. This is the substitution element of the principle tests of employment. To further simplify it, ask yourself if you have autonomy over who you employ to carry out work for the client.

What is Mutuality of Obligation?

You should consider including a “Mutuality of Obligation (MOO)” in your contract. Including this will determine without a doubt that there is a contract. A contract of employment will also be demonstrated if it is clear that the hirer is obliged to offer work and you are obliged to take it.

To keep the relationship transparent and clear, you should only work project to project - once a project is completed you are under no obligation to work on other tasks. You should also be free to work for another customer simultaneously...If not, you are probably employed!

Other elements you should consider:

  • HMRC will always try to argue that if you are using the client’s equipment, not your own, then you can be what is termed a “disguised employee”.

  • Ask yourself where the responsibility for your errors lies. If it lies with you, are you also carrying financial risk? Do you insure against this? If you do then you are probably OK.

  • If, during your time with the hirer, you become so ingrained in their company structure that you might even have people reporting into you – guess what, you are employed!

  • Do you operate your business as a “bonafide” operation with things like websites, accounts, employee’s, dedicated office space etc? If so then HMRC would have little argument that you are NOT an employee.

All evidence is considered by HMRC but if the balance of probability is that you are an employee then IR35 will apply. You can find more information on HMRC’s website.

If you are in any doubt then I would recommend you have a review – the tax penalties that HMRC impose can be quite substantial.

Geoff Selby, Business Director

We will be able to help you when it comes to IR35. We have an IR35 contract review service which we can provide through one of our partners. If, however, you are an existing customer and have our Payment Protection Insurance then an IR35 review may be provided free of charge. Get in touch to find out how we can help you.

Related Posts
View All News

Get in touch to see how we can make a difference to you and your business

Get in touch

Accredited & Experienced