Many IT specialists opt to go down the route of being independent contractors.
IT freelancing offers freedom and rewards you may not find in normal employment and it is booming due to the demand for specialized skills.
So if you do decide to start working independently, there’s no getting away from it: You need to be aware of IR35 tax legislation.
Why is IR35 legislation important for IT freelancers?
IR35 was created in 2000 to tax “disguised employees”. A typical example might be that you leave your job at your company and start working for the same company as a contractor under your own separate company.
The taxes associated with your employment contract are being avoided and at the same time you can enjoy tax breaks you may get working in your own firm.
This can especially happen with companies that provide personal services.
The way to comply with IR35 legislation is to make sure your contract and individual working practices fall outside the scope of IR35.
The main questions below will assist you in assessing whether you comply with the legislation:
- Are you under direct control of your client?
Ideally, the IT contractor needs to be given a list of tasks to be achieved and be able to show that he or she is not under the direct supervision of their client.
- Can your services be hired from someone else or can you provide your services to another client simultaneously?
This means a client should be able to find a substitute if you are not available for work.
- Do you expect your client to provide you with work on a consistent basis?
Your client, in practice, should hire you to undertake only specific tasks and not necessarily provide you with any additional work. It can be quite tricky if you have been hired several times in a row by the same client.
- Most importantly: Do you act like a company or as a contracted employee?
Your company needs to be VAT registered, be responsible for its own financial risks, have multiple clients, use its own equipment, be professionally insured, and advertise its services on its website.
These questions will, hopefully, clear some of your doubts whether you comply with IR35. If you are looking for a more detailed reference, please, check the HMRC website.
We recommend you discuss your working practices with a lawyer or a chartered accountant who will be able to help by making your contract compliant with IR35. Please get in touch if you need any help.