New and confused, IR35?

#1

Hello!

I decided to go freelance last month, and set up a Limited company online. I today have been offered a 6 month contract and have accepted. The agency have mentioned that they have an umbrella company unless I have a limited company, which I do… they then asked if it is inside IR35 and now I am completely lost! I’m unsure what that means and Google is just flooding me with walls of text that make no sense. I am happy to do my own invoicing, paperwork, taxes, etc. so I would like to avoid using a company if I can help it.

Any information would be really appreciated!

Thanks

Nikki

#2

Hi Nikki

IR35 means you cannot work for the same client for 2 years otherwise you can be deemed to be an actual employee of the company and that leaves the client open to HR legislation and employer on costs.

So ‘inside IR35’ means that you haven’t got any clients that you have worked for longer than that 2 year period.

I am registered self employed rather than a limited company. I would check with your accountant for the most correct information on how to proceed.

Thanks
Jacquie

#3

Hi Jacquie,

This is so interesting, could you let me know where you found out about the 2 year rule please? I’ve completed some mini IR35 trainings and done a bit of personal research into it but I’ve not heard that and some of my clients are coming up to 2 years so I’d like to be on top of it!

I did use the HMRC calculator and was deemed to be outside of IR35, but it doesn’t even ask about duration of working. My understanding is that there’s a lot more factors to consider than that - the calculator asks about financial risk, substituting associates, deciding how the work is done, etc.

Nikki - the HRMC CEST calculator might help: https://www.tax.service.gov.uk/check-employment-status-for-tax/disclaimer) But I agree it is a bit of a minefield!

#4

Hi ApexVA

My husband and I ran our own Engineering Consultancy and we used sub contractor Engineers and Designers. All of these people were limited companies and needed to be able to prove they were not working for any particular client for 2 years or more. We were always mindful as a business that we did not fall into that trap either. We were advised by our accountants, and it was always something that was openly discussed as it is common practice to work as a contractor within the oil and gas industry.

To mitigate any instances as a business, we would always issue defined contracts to our contractors outlining the contract term, thus no open-ended agreements, and they submitted timesheets and invoices on a monthly basis. We could not impose working practices on them, other than appropriate dress code for the office - so hours and days worked were entirely up to them. If they wanted to be off one day, they would just advise us. Their holidays were never recorded because we were separate companies and no answerable to each other.

We were advised it was necessary to maintain defined independence between organisation and subcontractor.

Hope that helps. But as I stated to Nikki it is always best to check with your accountant because case law can change the meaning of IR35.

#5

Thank you so much for the detail @JacquieRob! Its frustrating that HMRC don’t include the 2 year rule as a criteria on their very own calculator as it makes the whole thing more confusing.

That said, they do state that they will stick with the outcome suggested by the calculator, providing you answer all questions honestly and accurately. I have done, (including noting that my client and I have had back to back contracts in place), and it deemed this contract to be outside of IR35. So I’m happy with that! And strange that the 2 year rule clearly isn’t a factor in that decision…typical HMRC, clear as mud!

#6

Generally HMRC reserve the right to make their own decisions - but the CEST tool is good and should stand in court if it were ever challenged.

In general terms you should always be seeking to be “properly self-employed” anyway, as it future proofs your business and let’s you step back from the day to day running of it.