IR35 was first introduced under the Labour Government in 1999. To give it its full title, “IR35: Countering Avoidance in the Provision of Personal Services”, the measure is designed as a measure to put a stop to the practise of a freelancer or contractor providing services to a client under their own Limited Company, when they are existing as a de facto employee. This has led to many new and existing freelancers wondering if their work falls in or outside IR35, and a whole industry has sprung up around ensuring IR35 compliance.
It is absolutely vital that a freelancer be aware of their IR35 status – if an investigation is launched by HMRC and they are found to be inside IR35 (i.e., they are a “disguised employee”), they will be liable for any taxes they have evaded (due to being afforded a lower tax rate by their Limited Company status), as well as a fine.
For freelancers to determine their IR35 status, a number of tests can be used. In the following guides, provided by our sister site Contractor Advisor, we will help you to determine your IR35 status.
Part 1: What is Mutuality of Obligation?
Mutuality of Obligation is usually seen as the most important determining factor in IR35 status. A landmark IR35 ruling hinged on the existence of a Mutuality of Obligation. It refers to the existence of a requirement to provide work, and perform that work, between a client and a freelancer.
Part 2: What is Substitution?
If a Contractor exists independently, they should be free to sub-contract work should they deem it necessary. This guide explores that idea – and the implications surrounding – Substitution.
Four simple tests that can help determine your status in concert with other factors. As with all things IR35-related, they are not quite as straightforward as they appear.
Part 4: Other Determining Factors
There are many other ways you can prove your work falls outside IR35 aside from Mutuality of Obligation and Substitution.
Part 5: Direction & Control
These tests determine how autonomous and independent you are as a freelancers. Is your client really your client, or your employer?