IR35 Background - Page 2 - How contractors are affected

IR35 Background: << Back Next >>

[Page 2]

How are contractors affected by the rules?

Those who have set themselves up as consultants in limited companies need to watch out for IR35 and plan for IR35. After all, IR35 was introduced especially to catch them. But contractors should by no means assume, after reading a summary of the IR35 rules or the pages of the Revenue's website, that they are sunk.

In fact, the contractor's attitude ought to be quite the reverse. IR35 is a complex legal area and the Revenue has a very poor record at enforcing it. The Revenue has been unsuccessful in the majority of the cases it has taken up. Additionally there are a number of products available now to help contractors prepare and plan for IR35 and to help them if they are investigated. The infrastructure at hand to help contractors is now quite substantial.

What is "self employment"?

One of the reasons IR35 is such a complex legal area is that "self employment" is not defined anywhere in any legislation. The result, therefore, is that the definition of "self employment" is made up of case law - and there are a lot of cases to consider!

In an IR35 enquiry, the key to winning will be to demonstrate that you are genuinely self employed. All sorts of materials will be available to you to do this such as your contract and your working arrangements (please refer to our "Contracts" section and our "IR35 Enquiries" section and our "Beat IR35" section) but you will need a competent specialist advisor to help you. A competent specialist advisor will know how best to demonstrate you are self employed and will have detailed knowledge of the case law.

You will find in your career as a contractor that the most commonly referred to indicators of self employment are the three we mention below. Companies who provide IR35 contract reviews look for these elements in written contracts as do the various insurance companies who provide IR35 associated insurance products. (You can find out more about IR35 contracts by visiting the "Contracts" section of our website). The three most popular indicators are:

(1) Control

(2) Mutuality of obligations

(3) Right of substitution

(1) Control:

Employees are controlled by their employers. Their employers tell them what to do and when to do it. The relationship between employer and employee is one of "master and servant".

To assert you are self employed, you need to demonstrate that your relationship is not one of "master and servant". You need to demonstrate that your contract is not a "service contract" but rather that it is a "contract for services".

<< Back Next >>

Full index of pages:

Home Page IR35 Background - page 1 IR35 Background - page 2 IR35 Background - page 3

IR35 Rules - page 1 IR35 Rules - page 2 Beat IR35 - page 1 Beat IR35 - page 2

Beat IR35 - page 3 Beat IR35 - page 4 Ltd Company - page 1 Ltd Company - page 2

Ltd Company - page 3 Ltd Company - page 4 Umbrella Companies - page 1

Umbrella Companies - page 2 Composite Companies - page 1 Composite Companies - page 2

Composite Co - page 3 Composite Co - page 4 MSC - page 1 MSC - page 2 IR35 Insurance

IR35 Investigations - page 1 IR35 Investigations - page 2 Contracts - page 1

Contracts - page 2 Contracts - page 3 Resources 1 Resources 2 Resources 2 Sitemap