WHAT IS IR35?
IR35 is designed to stop contractors working as ‘disguised’ permanent employees (benefiting from the tax advantages of being a contactor without accepting the increased responsibilities of company ownership). This means working with the same level of responsibility, control and liability expected of directors of other limited companies.
WHAT ARE HMRC LOOKING FOR TO SEE IF YOU’RE INSIDE OR OUTSIDE IR35?
Below are a few helpful insights. Please be aware this is not a comprehensive list and that IR35 regulations are extremely complex but the below should hopefully provide some level of insight into what is determined outside of IR35.
In the context of IR35 a right to substitute means a contractually enforceable right for a limited company contractor to replace its representative, subject only to reasonable criteria such as suitability. This is also vital to show that the end-client’s requirement is for the professional contractor to provide a service and not merely supply a specific individual.
PROVISION OF EQUIPMENT
Often this is not allowed because of data protection and client restrictions but proof that you are using your own equipment and workspace is beneficial but not essential to showing you are IR35 friendly.
FINANCIAL RISK AND RESPONSIBILITY
Ensuring that the risk and responsibility does not all lie with the client and the individual/ representative are insured as part of their limited company and exposed to financial risk, for example not receiving payment from the client, as a director of your company you will most definitely experience financial loss.
As a self employed contractor you will not receive benefits in the way permanent employees will.
DATA PROTECTION ACT
Is your limited company registered under the Data Protection Act for dealing with Client’s data?
This is not a requirement but is helpful to show you are operating as an entity rather than individual employee.
HMRC have detailed and complex legislation when it comes to IR35 that extend further than the above basic tips and determining whether an individual falls inside or outside IR35 regulations essentially comes down to what the individual representative is doing and their level of risk, responsibility, liability and control.