IR35 In or Out Whats It All About

In a Nutshell

Tax status & money

In a Sentence

If you are caught by HMRC legislation known as IR35 you will have to pay more tax than if your contract falls outside IR35.

The best way to ensure your contract complies with IR35 rules is to get it reviewed by a professional employment lawyer who specialises in the UK freelance contract market. Yes it will cost a couple hundred pounds but then you can save considerably more than that over the course of your contract.

IR35 rules are not that difficult to comply with, in reality. And if you know what to look out for you can usually discuss the finer points with your recruitment agent, and agree to change minor points of the contract in your favour - with no downside to the agent or client.

The Law

Guess what? There is no solid case law you can refer to or rely on! After more than a decade and many court cases IR35 remains a complex and grey area in our legal system. The winners, as always, are the lawyers.

Having said that, much has been learned over the years and it's still worth it for contractors to get an expert's view. Make sure you choose an expert who has relevant experience in the specific field of IR35, and not any old high street lawyer or accountant.

IR35 Ins & Outs

In: Covering for maternity or sick leave for a few months is likely to mean the client wants a short-term employee, not a real contractor.

Out: You can do the specified work whenever you want, as long as you complete the task(s) by the specified date(s). You're not forced to work 9-5 Monday to Friday.

In: You have a line-manager who checks your work as you go along. They tell you what to do, how to do it and when to do it. If you have a supervisor you're inside IR35.

Out: The contract doesn't specify a named person to do the work - it's the company that does the work. It might be you one day, and a colleague the next - both fully capable of doing the work.

In: You cannot take on other work in parallel to one specific contract. Technically speaking, this is MOO, Mutuality of Obligation.

Out: You get paid in one lump sum when you've completed the task, rather than on a weekly or monthly basis like the client's fulltime employees. Payment on completion of key milestones is ok.

In: Any mistakes you make or re-work is done in the client's time and so at the client's expense. This is just the same as an employee.

Out: You buy and use your own equipment and not the client's, things like computers and software. You don't use exactly the same ‘tools of the trade' provided by the client for their regular workforce.

In: You're part of the furniture you've been there so long. Your name is in the company's telephone directory, you go to the Christmas party and you have direct salaried reports.