This content was last updated 6 April 2021.
IR35 rules in the private sector changed on 6 April 2021. Here are a few key things you need to know:
- Off-payroll working rules apply if you provide services to a client through an intermediary (usually your own company e.g. a personal service company), but would be classed as an employee for tax purposes if you were contracted directly.
- Under the new IR35 reform, responsibility for determining your employment status will shift to your client, where eligible, from 6 April 2021.
- If the rules apply and you’re deemed to be inside IR35, tax and National Insurance contributions must be deducted from your fees by the entity paying your company and paid to HMRC.
What should I do?
Review your contracts. Status is determined on a project by project basis, so it’s best to be prepared with each contract you write and the working relationship that’s implied.
The rules are complex, but there are three main factors that determine employment status. If all are present, the relationship is one of employment.
Whilst how much control you have over where you work, what you do and when are relevant, as well as your client’s expectations of you, the key factor of control is whether you are ‘responsible for the performance of the services’ - how you do the work.
- Will you be supervised?
- Can you be moved from task to task?
If yes, this may indicate your engagement is inside IR35.
Mutuality of obligation
This is a commitment to offer and accept work. For example, when you show up to an office every day, you expect to be given tasks and your employer expects you to do them.
- Is your contract specific about the work you will carry out? Or are you expected to take on each and every piece of work that might be assigned to you?
- Does the contract specify when the engagement will end (e.g. no implied automatic renewals)?
- Is there any expectation that you’ll be paid if no work is available?
Does your contract specify that your client only wants you? With a short-term freelance contract, you should be able to demonstrate that your personal service is not a requirement of the engagement and ideally you have a genuine right to send a substitute: someone else who could take your place to carry out the contracted work.
What else could affect my IR35 status?
Sometimes it’s impossible to determine status based on these three tests, so secondary factors may be looked at, like being in business on one’s own account and taking financial risk.
- Are you paid on a project-by-project basis?
- Do you use your own equipment?
- Do you have business insurances?
- Do you have your own company website?
- Do you invoice for your services?
Not sure where you stand with IR35?
IR35 is anything but straightforward. To help you understand more about your IR35 status, we offer access to a tax and VAT helpline during office hours. But, freelance life isn’t always nine to five, which is why our members can call our 24/7 legal helpline.
With access to downloadable templates covering everything you need, from contracts to invoices, you can spend less time on paperwork and more time freelancing.
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FSB Tax Investigation Protection provides comprehensive support and tax investigation insurance for most business-related HMRC enquiries, all at no extra cost. We’re on your side.