IR35 - are you employed or self-employed?

The prime aim of the IR35 tax legislation is to ensure that individuals working via limited companies are subject to the same taxation laws as an individual performing the same task under standard PAYE conditions.

A typical target for the IR35 rules would be a freelancer working on an office-based project, performing identical tasks to "employees" with the same working conditions, but working via his own limited company and thus paying less tax and national insurance than his co-workers.

In essence, as stated in the Inland Revenue IR56 leaflet, people deemed to be “self employed” will be free from IR35, whilst those deemed to be “employees” will most likely be subject to the IR35 rules.

A person cannot elect to be “employed” or “self employed”, as such definitions are defined by the nature of the IT contract undertaken.

As there are no formal definitions of such “employment types” in tax law, a number of “pointers” are used to determine someone’s true employment status for a given role.

Alongside our more in-depth IR35 Employment Status Overview, the following extract from the Inland Revenue leaflet provides some high level pointers to determine if your current work may fall within the IR35 net.

If you can answer ‘Yes’ to all of the following questions, you are probably an employee.

• Do you have to do the work yourself?
• Can someone tell you at any time what to do, where to carry out the work or when and how to do it?
• Do you work a set amount of hours?
• Can someone move you from task to task?
• Are you paid by the hour, week, or month?
• Can you get overtime pay or bonus payment?

If you can answer ‘Yes’ to all of the following questions, it will usually mean you are self-employed.

• Can you hire someone to do the work for you or engage helpers at your own expense?
• Do you risk your own money?
• Do you provide the main items of equipment you need to do your job, not just the small tools many employees provide for themselves?
• Do you agree to do a job for a fixed price regardless of how long the job may take?
• Can you decide what work to do, how and when to do the work and where to provide the services?
• Do you regularly work for a number of different people?
• Do you have to correct unsatisfactory work in your own time and at your own expense?

Extract © Crown Copyright :: Article provided by our partner site, Contract Eye