Knowing the language and where key terms are applicable is vital to getting in front of the new IR35 legislation changes.
From April 2021, IR35 will be applied all freelancers in the private sector in the same way as it is currently applied in the public sector. This means that the legal responsibility for determining the status of each contract falls to the end-user of the freelance contractor, not their PSC or any other intermediary, and with that comes significant tax compliance risk.
This stands for Check Employee Status for Tax and is a government tool to, in their words: "find out if you, or a worker on a specific engagement, should be classed as employed or self-employed for tax purposes". Basically to see if a contractor is in or out of IR35.
Similar to the MOO these are key tests of if a contract falls inside IR35. If a contractor has ‘contract of service’ it generally means they’re an employee: they have to work set hours at a set location or have a line manager and the client / employer can ask the contractor to perform any reasonable duties. On the other hand a ‘contract for services’ is one where a genuinely self-employed person provides specific services, for example to a particular project or set of deliverables. A contract for services doesn’t define where or when a contractor works in the same way as (say) an employment contract, only what the contractor is expected to provide and by when.
This is what HMRC are looking to stop: a disguised employee is a contractor who effectively does an employee-type job but doesn’t pay the same income tax or National Insurance contributions (NIC) that an employee would. (An employee-type job doesn’t have to be permanent and can be part time or fixed term, like maternity cover.)
This language can be seen as an indicator of a contract being inside IR35. Employment language means terms like line manage, hours of work, etc. Basically if it looks like something that would be more at home in an employee / employer contract than a business to business contract then it’s probably employment language and would point towards the contract being inside IR35.
If a contractor doesn’t have the right to take on another concurrent client then they are seen as being in exclusive service and this may point towards being inside IR35.
If a contract is assessed as inside IR35 the contractor is treated, for tax only, like an employee of the end user and so needs to be taxed like a PAYE employee. (It does not mean the contractor is an employee of the end user from an employment rights perspective.)
This is simply another name for the IR35 legislation.
This is just another way of talking about the contract for service and contract of services thing we mention above. But it goes deeper than the paperwork and looks at the underlying intentions of the client and contractor.
IR35 stands for Inland Revenue 35 - which is the reference number of the press release given by the Inland Revenue (now HMRC) to announce the intermediaries legislation. It’s also known now as the off- payroll legislation.
The legislation itself is designed to stop workers claiming to be self- employed contractors via an intermediary like their limited company for tax benefits when really they’re an employee.
MOO stands for ‘mutuality of obligation’. This is one of the key tests to see if a freelance contractor falls inside IR35. In short it’s the obligation of an employer to provide work for the employee to do, for the employee to do it and the employer to pay for it. If there’s MOO, the contract is almost certainly inside IR35.
If a contract is assessed as outside IR35 it means that the government sees the contractor as operating like a business, not like an employee, so the contractor’s PSC doesn’t need to be taxed like a PAYE employee.
This is similar to provision of equipment. Essentially if the client sees the contractor as part of the team and gives them access to other benefits a regular employee would get, like an unrestricted building pass for example, the contractor may be considered part and parcel.
This is asking who is providing all the equipment to be used, like a laptop, email account, etc. If these are being provided by the end client then the contract is likely to be considered inside IR35. However, specialist kit is excluded from this.
A PSC is a Personal Service Company which is normally a contractor’s limited company. But on rare occasions a person could use other
forms of intermediary like another individual, or a partnership or unincorporated association. Basically most things where the contractor is ‘wrapped’ in another structure which they have influence over in some way.
HMRC say that if the contractor appears to be under the supervision, direction or control of the end client then the contractor should be assessed as inside IR35; there is a bit of a grey area around what that means in practice and legally each word has a slightly different meaning (and there have been plenty of court cases arguing about it!).
A genuinely self-employed contractor should (in theory) be able to send a substitute contractor in their place to perform the work. A genuine right of substitution (and evidence of it having been exercised previously) would point towards the contract being outside of IR35.
This is another name for the day-to-day relationship between you and your contractors and will be a key ingredient in any IR35 assessment.