What is meant by ‘disguised employment’?

IR35 – What is meant by disguised employment?

IR35 is a legislation designed to tackle ‘disguised employment’ – ensuring that those working in a permanent employee setup aren’t reaping the benefits that come with self-employment.

An IR35 status is determined by looking at a contractor’s working arrangements.

If a contract shows that a worker has the same level of risk, liability and responsibility as other contractors, they will be seen as ‘outside’ IR35.

If, however, a contract is seen as being similar to that of a permanent employee, then the worker will fall ‘inside’.

It is possible for an IR35 status to change with each client, which means that you could potentially fall both ‘inside’ and ‘outside’ during the same year.

Read our Guide to IR35 page for more information.

Does it matter if someone is given an incorrect IR35 status?

An IR35 status will have a massive impact on take home pay and the benefits a worker is entitled to.

If a worker is classed as being inside the legislation, they will be subject to the same tax rates and National Insurance (NI) as an employee, which can consequently result in paying more than if you were outside IR35.

It will also affect self-employed benefits – if you fall inside you’ll be more limited when it comes to the type of expenses you’re allowed to claim back on.

This system doesn’t always work the way it is intended, meaning some self-employed workers are given an incorrect status.

Who decides a contractor’s IR35 status?

Before April 2021, it was down to the contractor to work out their own status, but legislation changes mean that this decision now falls on the client.

This has unfortunately led to some businesses ‘blanket-accessing’ their self-employed workers as being ‘inside’ to avoid getting a contractor’s status wrong and therefore facing questions from HMRC.

As a result of this, there are now many contractors who will only take on contracts that are guaranteed as being ‘outside’ IR35.

If a contractor disagrees with the employment status given to them, it is a legal requirement for the client to set up a process to deal with the disagreement.

As a contractor genuinely working outside IR35, it might be worth looking at ways to ensure you are given the correct status.

For example, consider providing your own equipment if you don’t already, regularly change up your work routine and look at the length of the contracts you sign up for – long-term projects that don’t have a foreseeable end date might allude to an employment arrangement.

Read our IR35 Rules page for more guidance on what HMRC considers when looking at a contract.

If you have any further questions about IR35, our team of experts are available to answer any queries, so give us a call on 01442 795 100, email jaime.thorpe@dolanaccountancy.com or contact us via live chat.