IR35 Compliance
IR35 compliance refers to adhering to the regulations set out by the UK government’s tax authority, HM Revenue and Customs (HMRC), in relation to the off-payroll working rules. These rules, also known as IR35, apply to individuals who provide services to clients through an intermediary, such as a personal service company (PSC), but who would be considered employees if they were engaged directly by the client.
How Can You Demonstrate That You Follow IR35 Compliance?
Directorate General of Supervision and Control (DSC)
Your contract must state that you have control as an independent contractor, which means you are not monitored and controlled at all. all aspects of the service you provide, such as providing your own service. and decide your own hours. It is important to demonstrate that you are not being treated as an employee of the client's business.
Consequences
If employment is deemed to be under IR35, it is the customer's responsibility to deduct an equivalent amount from Employer NI before paying the contractor. Effectively reflect all labor costs. Please contact Hive360 to learn more about the benefits of working with us.
Financial and Reality Risks
As an entrepreneur, you are solely responsible for your business and therefore need to take ownership of the financial realities, including investments and financial management. One obvious difference is that an employee receives a fixed salary regardless of the company's profit or loss, while an entrepreneur is exposed to financial risks, such as a contract ending unexpectedly and prematurely. to cost reduction.
Independence
As a contractor, being able to demonstrate that you provide independent services is critical to IR35 compliance. This can be done in a number of ways, first by demonstrating that you have control, that you provide your own services, bring your own equipment, and that your contract takes this into account. this. It can also be proven by showing that you are self-trained, advertised, have your own insurance, are registered for VAT and take other measures that are suitable for you personally.
Public Sector and IR35
In 2017, the government changed the regulations on non-wage payments and decision responsibilities of the General Department of Supervision and Control (DSC). To enhance compliance, they have shifted responsibility for DSC decisions from the contractor to the customer. Since the risk is now with the public sector agency, there has been a clear shift towards compliance and risk reduction. Obviously, the employer's perspective and risk threshold is quite different from that of an entrepreneur, and there has been a significant shift to the employment status considered under IR35, increasing earnings from HMRC .
Mutual obligation
MOO is an employment relationship clause in which an employer must provide regular work to its employees and the employee agrees to undertake such work. While as a contractor, once you complete your services, you should no longer expect to continue working and your relationship ends. If work is expected to be consistent and ongoing, HMRC may decide that you have attained employee status due to reciprocal obligations. Therefore, to maintain compliance, the MOO must not be present.
Benefits
IR35 is a set of tax laws that apply to contractors and freelancers who work through their own limited companies. Compliance with IR35 rules can provide several benefits, including:
Legal compliance: Complying with IR35 regulations ensures that businesses and individuals are meeting their legal obligations, avoiding potential penalties and legal disputes.
Cost savings: IR35 compliance can help businesses avoid additional costs such as tax and National Insurance contributions, as well as any potential fines for non-compliance.
Reduced risk: By ensuring compliance with IR35 regulations, businesses can reduce the risk of being investigated by HMRC and facing fines or penalties.
Improved reputation: Complying with IR35 rules can help to establish a business’s reputation as a responsible and compliant entity, which can be beneficial when competing for contracts or seeking investment.
Increased certainty: IR35 compliance can provide clarity for both contractors and businesses regarding tax obligations, which can help to avoid disputes and confusion.
Failure to comply with IR35 can cost you not only the high cost of defending yourself against an HMRC investigation, but also the potential burden of grappling with the cost of any unpaid taxes. if you are arrested by law.
Anyone can be investigated by HMRC and if you are within IR35 but have paid taxes as a contractor outside of IR35, you will be required to repay the respective taxes, interest and penalties.
You should also keep in mind that an HMRC investigation is by no means a walk, these procedures can not only be extremely stressful, but they can also take a long time. The cost of protecting against an IR35 investigation can add up very quickly if you don't have an insurance policy.
For services provided under the unpaid work regulations (i.e. in the public sector as of 6 April 2017 or for a medium to large private company as of 6 April 2021), you will not bear any liability as a contractor and will be your customer or payer who will be the subject of any investigation in connection with to those services.
Operating in IR35 means that under IR35 law, you must pay taxes as an employee. It can also mean that you are entitled to additional rights as an employee or worker, e.g. minimum wage, maternity benefits, anti-discrimination protection, etc. or the NIC that the employee should have paid for.
If a contractor is working outside of IR35 and HMRC has reason to question this, they can initiate an IR35 investigation. In this case, they will start by sending a letter asking for proof that the contractor is outlawing. HMRC can investigate your agreements at any time, which can be time consuming, expensive and stressful. They can also go back up to six years and evaluate previous contracts to see if the law should apply.
GET IN TOUCH
We prepare taxes, plan for the future, and provide advice on all of your financial needs. We take a comprehensive approach to our clients. We don’t just apply a single solution.
Call or email us any time or, simply fill out the contact form below and a member of our team will be in touch.