The IR35 legislation may not be all bad. Understanding more about it may help prepare interims/contractors better
In April of 2000, new IR35 legislation came into action to curb the possibility of fraudulent tax filing by contractors or personal services companies and to ensure strict adherence to tax rules and National Insurance Contributions (NIC) obligations.
The IR35 regulation aims to clear up any ambiguity around a person’s status when engaging a company for interim services rendered.
What every Interim Manager needs to know about the IR35 legislation
The regulation has some implications for Interim Managers that we’ll be covering in this article. We’ll highlight a few important factors around IR35 and what you can do to ensure that compliance concerns don’t become an administrative burden as you nurture a career as a successful interim professional.
Who does IR35 apply to?
The regulation applies to anyone who acts as an employee of a company. What this means is that if the services you are rendering are on-premises and are equal to that of a full-time employee’s daily responsibilities, or you are in fact replacing an employee, then you fall within the scope of IR35.
With this said, the rules on whether someone falls within the scope of IR35 aren’t hard and fast. If you are able to provide satisfactory evidence that you fall within the scope of a self-employed individual, or that of a personal services company, then IR35 regulations do not apply to you. This typically includes individuals who work on short term projects or join companies as consultants to provide specialised services for very specific business objectives.
So where do you fall within regulatory stipulations?
Assessing where you fall within the regulatory stipulations can be somewhat complex and requires some self-assessment. Also keep in mind that for each engagement, you’ll need to assess whether your services fall within the IR35 regulations or not. Moreover, this means you’ll need to allocate your income streams accordingly. For example, if you are earning money from more than one contract, you’ll need to allocate the income that falls within IR35 to accurately reflect and meet your tax and NIC obligations.
While the waters can seem murky with respect to IR35, it’s important for Interim Managers to assess themselves on a per-contract basis. We’ve included a few key questions that will help you assess your position.
If your answer is “yes” to most of these question, you probably fall within IR35 regulations:
- Are you the sole person responsible or capable of performing the work?
- Are you required to be physically present at the office to perform your functions?
- Do you get paid for overtime work performed?
- Do you have a direct superior that you report to?
If your answer is “no” you more than like fall outside of the IR35 scope:
- Are you liable for any unsatisfactory work in terms of time and money?
- Are you free to hire other people to do the work you have taken upon yourself?
- Do you pay people you hire out of your own cash flow?
- Do you provide the equipment you need to do your job?
Where can you go for more information?
If you are unsure about your status with regard to IR35, it’s best to seek professional advice. Also, if you feel that you should not have to comply with IR35, but it has been ruled that you must, you can make an application to the HRMC to have your situation reviewed and ruled upon. Alternatively, you could seek legal counsel to assist with an appeals process to have the ruling overturned.
There are some benefits to IR35 you should be aware of
It’s not all bad news for interim professionals grappling with IR35. If you do fall under the regulation, watch out for tax benefits. These include a 5% intermediary expenses provision, claims against travel and accommodation, private medical insurance, professional indemnity cover and others.
At InteriMarket, we’re always looking to find ways to make your transition to the world of interim management both practical and rewarding. Make sure you check back for more useful insights into the world of interim management.