IR35 Assessment - Check IR35 Status for Tax

Get a quick assessment of whether you are operating inside or outside of IR35 with our IR35 Assessment Calculator.


Chris Andreou

IR35 Assessment - Check IR35 Status for Tax

In the realm of freelancing and contracting in the UK, understanding your tax status is crucial.  One such regulation that often confuses individuals and businesses is IR35. The term "IR35 Assessment" refers to the process of determining whether you fall within or outside the scope of IR35 legislation. This assessment holds significant weight in determining how contractors and freelancers are taxed. Let's delve into what this assessment entails and why it's crucial for anyone operating within the UK's freelance economy.

What is IR35

IR35, also known as the "intermediaries legislation," is a tax law aimed at tackling tax avoidance by individuals working through an intermediary, such as a personal service company (PSC). It seeks to determine whether a contractor is genuinely self-employed or essentially an employee in disguise for tax purposes.

IR35 legislation is designed to determine if a worker is a genuine contractor (outside IR35) or should be considered an employee for tax purposes (inside IR35).

What Does it Mean to be Inside IR35?

Being inside IR35 means that HM Revenue and Customs (HMRC) considers you to be a "disguised employee." In this scenario, you're subject to similar tax and National Insurance contributions as a regular employee. You'll need to pay income tax and National Insurance Contributions on your earnings, just like an employee would.

What Does it Mean to be Outside IR35?

If you're deemed to be outside IR35, HMRC recognizes you as a genuine contractor or freelancer. This means you have more control over how you work and how you're paid. You're responsible for paying taxes and National Insurance contributions yourself, often through your limited company.

Who Gets Affected with IR35

IR35  impacts various individuals and businesses within the freelance and contracting world. Here's a breakdown of who may be affected:

  • Freelancers: Those who work independently for different clients on a contract basis.
  • Contractors: Individuals hired by companies for specific projects or tasks.
  • Small Businesses: Companies employing contractors or freelancers for various services.
  • Medium to Large Enterprises: Organizations engaging with contractors or freelancers to fulfill specific roles or projects.
  • Recruitment Agencies: Entities responsible for matching contractors or freelancers with suitable job opportunities.
  • End Clients: Businesses receiving services from contractors or freelancers directly.

Why Take This Assessment?

Taking the IR35 assessment is essential for contractors and freelancers to ensure compliance with tax laws. It helps determine whether they need to pay taxes as a regular employee (inside IR35) or as a business entity (outside IR35). This IR35 tool is developed by experienced experts in taxation and contracting and offers a seamless way to determine your IR35 status. Our IR35 assessment calculator is trusted by thousands of contractors and provides a reliable means to assess your IR35 status with confidence.

Here are the key factors and steps to assess IR35 status:

Understand the Basics:

IR35 applies to individuals who work through a Personal Service Company (PSC) but would be classified as an employee if not for the PSC.

The main goal is to prevent tax avoidance by "disguised employees" who use PSCs to reduce their tax liability.

Use Check Employment Status for Tax (CEST) Tool:

HMRC provides an online tool called the Check Employment Status for Tax (CEST) tool that can help assess employment status for tax purposes. While it's not legally binding, it provides an indication of IR35 status based on the information provided.

Factors to Consider for IR35 Status Determination:

When assessing IR35 status, consider several key factors. No single factor is determinative; rather, the overall working relationship is crucial. Some factors to consider include:

  • Supervision, Direction and Control: This aspect examines how much control the client has over your work. If they dictate how, when, and where you work, you may fall inside IR35. However, if you maintain autonomy over these aspects, you're more likely to be outside IR35.
  • Substitution: IR35 considers whether you can send someone else to do your work if you're unavailable. If the client insists on your personal service, you're likely inside IR35. On the other hand, having the freedom to send a substitute suggests you're outside IR35.
  • Mutuality of Obligation (MOO):This refers to whether the client is obliged to provide work and whether you're obliged to accept it. If there's an ongoing obligation for work and payment, you may be inside IR35. However, if each project is separate and you're not obligated to accept future work, you're likely outside IR35.

Other Factors Affecting IR35 Status

Several additional elements can influence the determination of your IR35 status:

1. How You Are Paid: The method and frequency of payment can indicate your employment status. Being paid a regular salary on fixed dates suggests an employment relationship, while invoicing for completed projects leans towards self-employment.

2. Alternative Work: The ability to take on multiple contracts simultaneously or engage with other clients can demonstrate self-employment and independence from a single employer, strengthening your case against IR35.

3. Equipment: Providing your equipment and tools for the job supports the notion of being in business on your own account, indicating self-employment.

4. Premises: Working from your own premises rather than the client's location suggests autonomy and control over your working arrangements, aligning with self-employment.

5. Corporate Involvement: Involvement of a company structure, such as operating through a limited company, can indicate a business-to-business relationship rather than one of employer and employee.

6. Financial Risks: Bearing financial risks, such as covering business expenses, such as liability for rectifying mistakes or incurring losses, demonstrates an entrepreneurial approach and supports a self-employed status.

7. Employee Type Benefits: Access to employee benefits like sick pay, holiday entitlement, or pension contributions from the client may indicate an employment relationship.

8. Part and Parcel: Being integral to the client's organization, working alongside their employees, and being subject to their rules and policies suggest employment rather than self-employment.

9. Intentions of the Parties: The intentions stated in the contract and the actual working relationship between you and the client can influence how HMRC perceives your employment status.

10. Right of Dismissal: The ability of the client to terminate the contract without notice. The terms surrounding contract termination, such as notice periods and the ease of termination, can indicate the level of control and mutuality of obligation, impacting IR35 status.

11. Blacklists: Being included in a client's internal or industry-wide blacklist of contractors may suggest an employment relationship, affecting your IR35 status.

Considering these factors alongside the core aspects of IR35 assessment can provide a comprehensive understanding of your employment status and guide your compliance efforts.

Consider Historical Case Law:

Historical IR35 case law can provide insights into how similar cases were decided in the past. While each case is unique, it can be helpful to review precedents.

Complete a Status Determination Statement (SDS):

In some cases, end-clients or intermediaries (like recruitment agencies) are responsible for determining the IR35 status. They must provide a Status Determination Statement (SDS) outlining the reasons for their decision and share it with the worker and the fee-payer (usually the PSC).

Appeal Mechanism:

If a worker disagrees with an SDS provided by the end-client or intermediary, there should be an appeal mechanism in place to resolve disputes.

Ensure Compliance:

If a worker is found to be inside IR35, the fee-payer (usually the PSC) is responsible for deducting income tax and National Insurance Contributions (NICs) before making payments to the worker. Compliance is crucial to avoid penalties.

Please note that IR35 rules and interpretations may change, and it's essential to stay updated with the latest regulations and seek professional advice when assessing IR35 status, especially for complex situations. The consequences of misclassification can result in significant tax liabilities and penalties.

Seek Legal Advice:

IR35 status assessments can be complex, and tax authorities may scrutinize working arrangements carefully. It's advisable to seek professional advice from contractor accountants who specialize in IR35 compliance. They can provide personalized guidance tailored to your specific circumstances, helping you manage the IR35 rules with confidence.

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