Working outside IR35

What is IR35?

The IR35 legislation is designed to tackle ‘disguised employment’ – ensuring that workers aren’t reaping the benefits that come with contracting when they’re in a permanent employee setup.

An IR35 status is based on a contractor’s level of risk, liability and responsibility, and determines the amount of tax and National Insurance Contributions (NICs) they will need to pay, as well as whether they are eligible to claim back on certain expenses

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

Working outside IR35

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

If, however, a contract is seen as being similar to that of a permanent employee, then the worker will fall ‘inside’, which means that they will pay more tax and National Insurance than a contractor working outside of IR35 and won’t be entitled to certain expenses.

As you can imagine, it can be extremely problematic for self-employed professionals should they be given an incorrect IR35 status as it could have a massive impact on their take home pay.

Read our IR35 Guide for more information on this.

Who decides a contractor’s IR35 status?

It used to be down to the contractor to work out their own status, however, in 2021 changes to the legislation mean that this decision now falls on the client.

Unfortunately, this has resulted in many businesses blanket-assessing their self-employed workers as being ‘inside’ IR35 – this is due to some believing that it’s ‘safer’ to do so in order to avoid getting it wrong and having to face questions from HMRC.

The government provides a Check Employment Status for Tax (CEST) tool to determine a worker’s employment status, using information based on:

• Details of the contract
• The worker’s responsibilities
• Who decides what work needs to be done
• Who decides when, where and how the work is done.

However, the reliability of this tool has raised concerns over the years, with many people reporting that it has failed to deliver an accurate employment status determination.

It is possible for a contractor to disagree with the employment status given to them by their client, in which case, it is a legal requirement to set up a process to deal with the disagreement.

Take a look at our Using your Limited Company when inside IR35 page for more information on this.

If you need any further help, or you’d like to sign up you can either contact us via our online chat, call one of our friendly experts on 01442 795 100 or email sophie.lewis@dolanaccountancy.com.