Understanding What IR35 Is & The Concequences

IR35 legislation can be a complex area for both contractors and businesses. It’s designed to ensure that individuals working like employees pay the same tax as employees, but determining whether you fall under IR35 rules can be challenging.

What is IR35?

IR35, or off-payroll working rules, is UK tax legislation aimed at preventing individuals from avoiding tax by operating through an intermediary company. If you’re a contractor working through a limited company for a client, IR35 determines whether you should be taxed as self-employed or as an employee.

Key Factors Determining IR35 Status

Several key factors determine whether you fall inside or outside IR35:

• Control: Do you control how, when, and where you work?
• Substitution: Can you easily find someone else to do the work?
• Mutuality of obligation: Is there a long-term commitment between you and the client?
• Equipment and tools: Do you provide your own equipment and tools?
• Business risk: Do you bear the financial risk of the project?

Consequences of Getting IR35 Wrong

Misclassifying your IR35 status can have significant financial implications. If you’re inside IR35 but treated as self-employed, you could face a tax bill and penalties. Conversely, if you’re outside IR35 but treated as an employee, you may lose out on tax benefits.

How Can We Help?

Navigating IR35 can be difficult. Rogers Spencer can help you understand the complexities of the legislation and assess your IR35 status. We can provide guidance on:

• IR35 assessments
• Contract reviews
• Tax planning
• HMRC enquiries

Don’t let IR35 uncertainty impact your business. Contact us today for expert advice.

<Robin Maxwell

Robin Maxwell is a partner of Rogers Spencer and has been working with us since 2003. Robin specialises in Accountancy Solutions, Audits and Tax and VAT. Find out more about Robin here.