WHAT IS IR35?

IR35 LEGISLATION

Introduced in April 2000, IR35 legislation aimed to identify individuals who were ‘true’ contractors and those operating under ‘disguised employment’. Under this tax legislation, contractors whose contracts fall within IR35 were liable to follow PAYE regulations, effectively making them employees of their own limited company. Each contract undertaken would be considered as to how the contractor provided services. Until 2017 the contractor was responsible for deciding if they fell inside the legislation and shouldering the consequences of being challenged by HMRC.

2017 REFORMS

Reforms to the legislation introduced in April 2017 meant that contractors offering services through their limited company to the public sector, were no longer able to determine their own status, and the decision making moved to the end user organisation. In 2021, the changes were introduced to the private sector where the end client was a medium to large sized business.

EMPLOYMENT TEST

To coincide with the 2017 reforms, HMRC released an online tool: Check Employment Status for Tax (CEST). The tool was intended to help the decision-making process but quickly its accuracy was queried. In law there are 3 tests of employment that are essential to making an IR35 status decision.

  • CONTROL

    Where a client has control over how the individual performs the service it implies that the contractor is employed. If the client has no right of control then the contractor relies on their suitable qualifications and experience.

  • MUTUALITY OF OBLIGATION

    This refers to the obligation of an employer to provide work and pay for it, together with the obligation of the employee to personally do the work. An obligation is a legal requirement that someone does something in the future.

  • SUBSTITUTION

    If the contractor has the right to send a substitute to fulfil the contract then it indicates that the contract is not one of employment. The client can refuse to allow the substitute to carry out the work, but only if the substitute is not suitably qualified.

ASSESSMENT UNCERTAINTY?

The reforms to IR35 in the last few years has brought significant uncertainty to contractors. Responsibility for deciding on whether or not the contract is inside or outside IR35 is largely in the hands of the end client and has left contractors uncertain of their options on a contract by contract basis.

HOW AMBA CAN HELP YOU

Working through Amba will take you outside the uncertainty of IR35. You are a permanent employee engaged on a Contract of Services and employed through AMBA umbrella. We’ll look after your Income Tax and National Insurance obligations, and provide you with all the employment rights and benefits given to permanent workers. Simply send us your timesheet and we’ll do the rest. It’s that easy! This leaves you free to get on with what you do best, safe in the knowledge that everything is taken care of.