As most contractors will know, IR35 can often be a confusing part of tax legislation, but it is one that is imperative in the world of freelancing.
Here’s our guide to the most common misconceptions about IR35 and what you really need to know.
Having more than one contract per week means you are outside of IR35
This grey area really depends on the contracts you have, as IR35 applies to each individual contract. Although having numerous contracts does help to suggest that you aren’t necessarily an employer of a specific company, it doesn’t always stop a contract from falling inside IR35.
The most important thing to highlight here is that you really know what your working conditions are on each contract with regards to your employment.
If a contract has been reviewed and failed you are inside IR35
Again, this is bit of a confusing area. Ultimately, any IR35 enquiry is in the hands of HMRC and it will always look to a contract before anything else.
If your working arrangements are compliant and your end client can confirm this, a written agreement in contract can be overridden. An obvious issue here is that a lot of agencies don’t always create tailored contracts, so getting a written agreement that really reflects an individual’s work can be difficult.
If your contract is somewhat negative and there is no way of having it changed, then you should really look towards putting a confirmation of your arrangements at work in place with your end client.
Having to work set hours per day means you are inside IR35
The majority of freelancers have set hours for various reasons, these can be to comply with a company’s health and safety rules for example. It doesn’t always mean that you are controlled by the client or within IR35.
If your contract looks similar to that of an employment contract – for example, if it states that what your lunch breaks should be, how sickness is dealt with and mentions redundancy – then it could definitely be of a hindrance.
However, working hours and rates of pay that are based on a professional working day aren’t necessarily an issue.
Should HMRC query this, there is always the argument that you need to be able to access the client’s sources which mean that you would need to work during the same hours that they do.
IR35 applies once you have worked for a client for two years
This isn’t true as IR35 is dependent on your day-to-day work basis rather than the amount of time you have worked for a specific client. This common misconception arises from the 24 Month Rule which states that if you have been at the workplace for 24 months, it is not classed as temporary. However, this refers to travel and claiming expenses so is irrelevant to IR35 a a piece of legislation.
Obviously, if you do work on a freelance basis for one client for a long amount of time, HMRC will look to using this should there be a dispute and it can often be hard to disprove, but isn’t impossible. With this in mind, it is more favourable to have shorter contracts with a variety of clients, but it shouldn’t actually hinder you from working with one client if it is beneficial to both of you.
Using a client’s equipment places you within IR35
There isn’t really a straightforward answer for this as some companies would need a contractor to use specific equipment that only they can provide and/or on site.
Although HMRC may try to suggest that this demonstrates that you are an employee, it is actually a somewhat neutral issue for IR35. If it is a requirement for the specific type of work, then you have a strong argument should it be raised as an issue.
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