Expert Advice: How to Be Outside IR35 – How to Avoid IR35

If you’re a contractor, freelancer, or self-employed individual, you might be concerned about the impact of IR35 regulations on your work. These rules, which determine whether you’re inside or outside of IR35, came into effect in April 2021 and have caused confusion and uncertainty for many in the industry. However, with the right knowledge and strategies, you can effectively avoid being caught by IR35 and remain outside its scope.

In this section, our experts will provide invaluable advice on how to be outside IR35 and navigate the complex regulations. We will discuss the key IR35 rules that you need to be aware of, including the concept of mutuality of obligation and being named in the contract. We’ll explore HMRC’s perspective on working practices and the importance of having the right to substitute. Our top tips will help you to strengthen your position outside IR35, and we’ll stress the importance of having your contract reviewed by an expert and working for multiple clients.

Key Takeaways

• Understanding IR35 rules is crucial for contractors, freelancers, and self-employed individuals to avoid being caught by these regulations.
• The concept of mutuality of obligation and being named in the contract are important factors in determining your IR35 status.
• Having the right to substitute and working for multiple clients can strengthen your position outside IR35.
• Consulting with an expert and having your contract reviewed can help you navigate the complex world of IR35.
• Staying informed and proactive is key to ensure a successful and compliant contracting career.

Understanding IR35 Status and Working Practices

As a contractor or freelancer in the private sector, it is crucial to understand your IR35 status and the factors that contribute to it. Being inside IR35 can lead to IR35 investigations and significant financial repercussions, so it is important to clarify your working relationship with your clients.

The first step in determining your employment status is to assess your working arrangements with your client. The private sector off-payroll working rules, commonly known as IR35, apply to individuals who provide their services through a personal service company (PSC), but who would be considered an employee if they were providing those same services directly to the client. This means that if HMRC deems you to be inside IR35, you could be liable for tax and national insurance contributions as an employee would be.

The working relationship between you and your client is a crucial factor in your IR35 status. It is important to ensure that your contract accurately reflects your working relationship and that you are not under the control of your client in the same way as an employee. If you are required to provide services personally, rather than being able to send a substitute, this is indicative of a personal service relationship, which could place you inside IR35.

Using an umbrella company or working through a limited company can also impact your IR35 status. An umbrella company is an employer that facilitates your contract work, whereas a limited company contractor is considered self-employed. Depending on your working practices, one option may be more beneficial than the other, but it is important to consider the tax and national insurance implications of each.

In summary, understanding your IR35 status and the working practices that contribute to it is crucial for contractors and freelancers in the private sector. By assessing your working arrangements with your clients, considering your options for working through an umbrella or limited company, and maintaining compliance with tax and national insurance contributions, you can help ensure that you remain outside IR35 and avoid any potential HMRC investigations.

Strategies to Stay Outside IR35 and Ensure Compliance

Contractors who want to avoid being caught by IR35 regulations must take proactive measures to stay compliant. In this section, we will provide strategies to help you stay outside IR35 and maintain compliance.

Substitution

One of the most important factors in determining your IR35 status is whether you have the right to substitute yourself with another person to do the work. If you have this right, you are more likely to be considered outside IR35 as it shows a lack of personal service. Ensure that the substitution clause is included in your contract and that it is not merely a token gesture.

Working Hours

Another way to demonstrate that you are outside IR35 is by having control over your working hours. As a contractor, you should have the freedom to decide when, where, and how you work. Ensure that your contract reflects this and avoid being dictated by your client.

Business Cards and Freelancing

Being able to demonstrate that you operate as a business can significantly strengthen your position outside IR35. Use business cards and letterheads that reflect your limited company. Also, consider working as a freelancer for multiple clients, as this indicates that you are not under the client’s control and that you are offering your services to the open market.

New Contract Considerations

When entering into a new contract, consider carefully the terms and conditions, particularly regarding holiday pay, financial risk, and sick pay. These should be clearly defined and provisions should be made to ensure you are protected as much as possible.

Small Businesses and Limited Company Contractors

Small businesses and limited company contractors need to take extra care to ensure that they are outside IR35. Consult with experts, and have your contract reviewed by an expert to ensure compliance. Additionally, make sure you are paying the right amount of tax and national insurance contributions to avoid an IR35 investigation.