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Am I inside or outside IR35?

freelancesupermarket.com newsroom

RSS 18 September 2009
When you speak to the average contractor, one of the most talked about subjects is employment status, and in particular whether their working arrangements fall inside or outside IR35.

There are a few good reasons for this; if a contract is inside IR35, you'll be paying anything up to 15% more in taxes and forced to use the deemed employment payment on your contract income.

Being inside IR35 also means that you are effectively controlled by the client - which may be contrary to why you started contracting in the first place.

But can an entire business be inside or outside IR35?

Short answer - no.

The reality is that a contractor may be inside IR35 on some contracts, but not on others. This provides significant flexibility, particularly if you're prepared to invest a bit of time reviewing the intricate (and sometime elaborate) contract terms prepared by an agency or client before the onset of a new assignment.

You should also be prepared to negotiate specific items within a contract to firm up your employment status. So instead of turning down contracts that may fall inside IR35, in favour of less lucrative or stable contracts that remain outside IR35, why not request the odd omission or inclusion of certain 'self employment' pointers within a contract and save yourself a whole load of money in the process.

Here are the classic traits of an inside IR35 (or deemed employed) contractor according to the IR35 rules.

* I have to do the work myself
* Someone can tell me at any time what to do, where to carry out the work or when and how to do it
* I work a set amount of hours
* Someone can move me from task to task
* I am paid by the hour, week, and sometimes month
* I get overtime pay and bonus payments

And the those of an outside IR35 (or self employed) contractor

* I can hire someone to do the work for me or engage helpers at my own expense
* I risk my own money
* I provide the main items of equipment I need to do the job in hand, not just the small tools many employees provide for themselves
* I agree to do a job for a fixed price regardless of how long the job may take
* I can decide what work to do, how and when to do the work and where to provide the services
* I regularly work for a number of different people
* I have to correct unsatisfactory work in my own time and at my own expense

I'm sure you could argue that some of your working arrangement fall within both lists, and this is probably true of most contractors. To correctly determine your status for tax purposes however, you must first establish the facts.

Ask yourself honestly if, based on the above classifications, you think that your current or future assignment could be outside IR35. If so, get yourself sorted with a decent IR35 contract review, negotiate terms with your agency or client and above all else maintain a bullet proof audit trail of why you think you are self employed and subsequently outside IR35.

© 2009 All rights reserved. Reproduction in whole or in part without permission is prohibited.
Image: Don't step over the line by Banalities

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