What is IR35 ?
Understanding UK Tax Legislation
IR35 also known as « off-payroll rules » is a tax legislation introduced in the United Kingdom in April 2000 that intent to identify and prevent what is known as "disguised employment." Under IR35, A company can not hire a worker as a contractor who would provide the same service as an employee because in that case, company avoid paying national insurance contributions and employee avoid paying employment taxes.
IR35 keys factor
In order to determine whether contrators are « inside » or « outside » IR35, they are three main principales taken into consideration :
- Control: The level of control (how, when, and where the work is done) the client has over the worker is a key factor in determining the worker's employment status.
- Substitution: Can the contractor send a replacement to accomplish the service in his place ? If the answer is no, it may suggest an employment relationship.
- Mutuality of obligations: Is there an obligation for the company to provide a work to the worker and is the worker has the obligation to execute it.
It is important to note that these factors are not exhaustive, and each case should be assessed on its individual circumstances. The final determination of employment status will depend on the overall picture formed by considering these factors.
What does « inside » and « outside » IR35 means ?
Inside IR35 refers to contractors that are subject to tax and national insurance insurance just like employees. They are considered employee of the end client.
Outside IR35, on the other hand, refers to contractor's that are eligible to be self-employed ofr tax purposes. They are responsible for managing their own company, are eligible for tax advantages.
