Who does IR35 affect?
How to tell who falls under IR35
Much of the publicity surrounding IR35 has concentrated on its effect on the IT industry where a lot of contractual work is carried out. It would be wrong to assume that it only applies to people working in the IT sector, though. The legislation has baring on any business sector where (according to the HM Revenue & Customs):
- an individual (known as a worker) provides services to another person (client)
- under arrangements involving an intermediary (such as a company or a partnership)
- in circumstances such that if the contract had been made directly then the worker would have been an employee of the client
Anyone who organises their work like this could be affected by IR35. And the range of professions where people work through service companies is wide. Examples include medical staff, chief executives of large plcs, legal and accountancy staff, construction industry workers, clerical workers, press officers, night club bouncers and many others.
It’s important to remember that IR35 can apply to anyone working through an intermediary, regardless of what they do. And the intermediary is normally a limited company, commonly referred to as a service company, although it could also be a partnership.
If a worker is claiming to be self-employed but is working under conditions where they would be employed by the client were it not for the intermediary company or partnership he or she falls under IR35.
There are guidelines on the HMRC website for the worker who is in doubt as to whether an engagement is employment or self-employment. And it’s worth checking against these as they will be the yardsticks by which the HMRC will make its judgement in cases of dispute.
To give an example, this man would fall under IR35:
- Gordon is an IT contractor who works through his own service company. The client is a large retail concern and Gordon works as part of a support team for the payroll system.
- The client has the right to tell him “how” the work should be carried out – though in practice this is not normally necessary. He must also work a regular 40-hour week on the premises.
- Gordon’s company is paid an hourly rate. The client pays monthly after an invoice from the company.
The HMRC’s conclusions are:
Building a website for your business idea is easier than you might think. Our online tool ranks the top website builders that offer free trials.
- The engagement is fairly long, there is extensive right of control and he must carry out the services personally.
- The only pointers to self-employment are the minimal financial risk from invoicing, the ability to work for others, and the existence of a business organisation for other clients.
Therefore, the engagement is one which would have been an employment had it been directly between Gordon and the client. The common intention for self-employment does not alter that. While it would have proved decisive in a borderline situation, a review of other factors clearly points to employment here.
IR35 applies to the engagement.