EMPLOYEE OR CONTRACTOR?

The key is to determine if a contractor has a contract of service or a contract for service. If a contractor has a contract of service then IR35 applies and a deemed payment must be calculated and tax and National Insurance contributions paid. If a contractor has a contract for service they are self-employed and IR35 does not apply. The tax advantage is that more expenses can be claimed and a mixture of salary and dividends paid.

In order to determine whether IR35 applies matters such as control, financial risk, substitution, provision of equipment, right of dismissal and employee benefits need to considered. If your contract has the same level of risk, responsibility, liability and control as a permanent employee then you would be affected by IR35 legislation.

• Control - try to ensure you are not managed by your client.

• Financial risk - if possible quote for work rather than receive a daily rate.

• Substitution - ensure your contract allows you to use somebody other than yourself.

• Provision of equipment - use your own equipment where possible.

• Right of dismissal - your contract should allow immediate termination.

• Employee benefits - you should not receive holiday pay, be invited to Xmas dinners etc.

As well as the above HMRC review all aspects of your business to establish whether you are genuinely running, managing and controlling your limited company rather than an employee.

If you are inside IR35 there are still benefits in trading through a limited company. You can claim travelling expenses, 5% of your turnover & benefit from the VAT flat rate scheme.

IR35 is complex. Consideration of the points above will help keep you outside IR35.

Contractor Pages ► Contractors & Freelancers ■ IR35 & Personal Service Companies ■ IR35 Advice ■

■ IR35 Employment Status ■ Advantage of Separate Contracts for Each Project ■ IR35 Case Law ■

■ Engaging as Employee or Contractor ■ IR35 Status Review ■ Contractor Expenses Guide ■

Registered office: 61 Friar Gate, Derby, Derbyshire, DE1 1DJ   T: 01332 202660

Adrian Mooy & Co is the trading name of Adrian Mooy & Co Ltd.  Registered in England No. 05770414