What have we learnt about IR35 so far? (Part 2)
What do contractors need to know?
Last week we wrote about how it is the Client’s obligation to decide whether a contract should sit inside or outside IR35. This week we want to discuss what contractor’s need to know and what they should watch out for.
Firstly, a contractor should never sign a contract before they know explicitly whether their contract is going to sit inside or outside IR35. The contract that they are given by their recruitment agency or umbrella company must reflect the end client’s decision.
If a contract does sit inside IR35, the contractor will be liable to tax deductions. The individual must find out whether their recruitment agency has the capacity to make these deductions on their behalf. Some recruitment agencies will not be set up to payroll PAYE workers and will not have the infrastructure in place to make the relevant tax deductions. In these cases, the individual should work through an umbrella company who will be in a position to make the correct tax deductions from their pay.
If an individual is working outside of IR35, they must ensure their contract matches their working conditions. For example, a contract may state that the individual does not have access to the staff canteen or other benefits. These contractual obligations must be followed in the workplace. Otherwise, the individual risks working inside IR35 and breaking the scope of their contract.
An individual can work through both an umbrella company and a ltd company at different points. For example, an individual may work for an inside IR35 contract for a month and use an umbrella company and then take a different contract later in the year that is outside IR35 and in which they use their own Ltd company as they won’t be liable for tax deductions.
If an individual is already working in a contract that goes beyond 6th April 2020, the individual should be aware that their current contract will need to be changed to reflect their IR35 status.
If you have any questions about IR35 then please feel free to contact us and we’ll be happy to help.