If you`re a consultant or contractor in the UK, you`ve likely heard of IR35. This is a complex piece of legislation that determines whether you`re considered an employee or self-employed for tax purposes. As of April 2021, IR35 reform has been extended to the private sector, meaning that many more consultants and contractors may need to consider their position under IR35. If you`re entering into a consultancy agreement, it`s important to understand IR35 and how it may affect you.
The first step is to determine whether you`re inside or outside IR35. If you`re outside IR35, you`ll be treated as self-employed and will be responsible for paying your own tax and National Insurance. If you`re inside IR35, you`ll be considered an employee for tax purposes and will need to pay tax and National Insurance at the same rate as an employee. This can significantly impact your take-home pay.
When entering into a consultancy agreement, it`s important to ensure that the agreement reflects your IR35 status. If you`re outside IR35, make sure that the agreement specifies that you`re providing services as a self-employed individual. If you`re inside IR35, the agreement should reflect that you`re providing services as an employee. This can include details such as holiday entitlement, sick pay, and notice periods.
It`s also important to consider the terms of the agreement in relation to IR35. For example, if the client has significant control over your work, this could indicate that you`re inside IR35. Similarly, if you`re required to work set hours or at a specific location, this could also indicate that you`re inside IR35. It`s important that the agreement reflects the reality of your working relationship with the client.
If you`re unsure of your IR35 status, seek professional advice. There are a number of online tools and calculators that can help you assess your position, but these are not a substitute for professional advice. An experienced tax advisor can help you navigate the complexities of IR35 and ensure that you`re compliant with the legislation.
In summary, if you`re entering into a consultancy agreement, ensure that the agreement reflects your IR35 status and the reality of your working relationship with the client. Seek professional advice if you`re unsure of your position under IR35. With the right approach, you can ensure that you`re compliant with the legislation and can continue to enjoy a successful career as a consultant or contractor.
