IR35 Contractor rules explained
Are you ‘Self Employed’?
The first and most important point is to establish whether you are ’employed’ or ‘self-employed’ under HMRC’s terms. The ambiguity of the ’employment status’ guidelines does not help the matter.
The Revenue states that they will take an overall view of a contractor’s position to determine whether they will be deemed ’employed’ under the rules, therefore any amended contracts should also reflect your working practices.
It is clearly in all contractors’ interests to be viewed as ‘self-employed’, or at least for part of your income to be IR35-free. If you are able to diversify your business interests or change your working practices in order to satisfy more of the pointers to ‘self-employment’, your position will be strengthened.
In essence, there are several ways to beat the IR35 rules:
* Show that you are ‘self-employed’, as per the Revenue definition of the term (see above). This is the ideal option. This will typically require an ‘IR35 friendly’ contract, with working practices which match those stated in the contract.
* Contract Overseas – leave for sunnier climates and get taxed on a fairer basis elsewhere. Of course, there are many other reasons why contracting overseas may also appeal (less pollution, cheaper accommodation costs, etc.). Whatever your reason for making the move, you should be aware that overseas tax laws are equally or more complex than those in the UK, so you should consult a tax specialist before you leave, otherwise, you may not necessarily be any better off financially.
* Go Permanent – contracting is a way of life – if you enjoy it, you should go for one of the previous options before thinking about going permanent. On the other hand, this may appeal to some contractors who find the uncertainty over IR35 unbearable and prefer to feel more secure about their future.
* Do Nothing – many contractors have not addressed the IR35 issue – either hoping that the legislation will be revoked, or believing that it will not apply to them. We would advise against this approach. IR35 is law, and all contractors caught by the IR35 rules should make arrangements to meet the increased financial burden.