Do You Need an IR35 Accountant?
IR35 is an important consideration for contractors who provide services through their own limited company or another intermediary. The rules are intended to ensure that someone who works in a similar way to an employee pays broadly similar Income Tax and National Insurance.
IR35 can appear complicated because the written contract is only part of the picture. The actual working arrangement also matters, including who controls the work, whether a substitute can be provided, how the contractor is paid and how closely they are integrated into the client’s organisation.
Who decides whether IR35 applies?
For public-sector organisations and medium or large private-sector clients, the client will normally decide the contractor’s employment status for tax. The client should provide a Status Determination Statement explaining its decision.
When services are provided to a small private-sector client, responsibility normally remains with the contractor’s intermediary, which is often their personal service company.
IR35 is considered separately for each engagement. A contractor could therefore have one contract that falls inside IR35 and another that falls outside it.
What do inside and outside IR35 mean?
If a contract is inside IR35, the contractor is treated as an employee for tax purposes for that engagement. Income Tax and National Insurance will normally be deducted from the relevant payments. This does not automatically give the contractor employment rights from the client.
When a contract is outside IR35, the contractor continues to be taxed through their business in the usual way. However, the contract and day-to-day working practices should support that position.
HMRC’s Check Employment Status for Tax tool can help assess an engagement. HMRC states that it will stand by the result when the information entered is accurate and remains consistent with its guidance. The completed answers and result should be retained.
How can an IR35 accountant help?
An IR35 accountant can explain how a determination affects your company accounts, payroll, Corporation Tax, VAT and Self Assessment. They can also help identify when further advice or a specialist contract review may be appropriate.
It is better to consider IR35 before starting a contract rather than after payments have been received. The position should also be reconsidered if the contract or working arrangement changes.
GMS Accountants provides straightforward accounting support to contractors and consultants in Cambridge, Nottingham and across the UK. If you need help understanding the accounting and tax consequences of an IR35 decision, get in touch.
