In the same way that business owners have been able to use this system in their favour, many contractors themselves have also used their position and status as either a freelancer or a sole trader to avoid paying income which they would have normally had to pay. Under the proposed new IR35 rules, an employer could no longer use consultants and contractors as a way of staffing their business in a tax-free way. You could face penalties if HMRC thinks you have been abusing the system.
To help you tread the right path in the eyes of the law, you need to be sure that when you hire a consultant or contractor, they are clearly recognisable as an independent contractor and cannot be classed as an employee according to HMRC rules. It can be a bit of minefield for a business owner to navigate, but the hiring process can be made clearer by following this four-point checklist:.
It is quite understandable that business owners need to access a range of expert talent to help plug the gaps in their skills and knowledge whenever there is a need. So, what can SMEs do to get the specialist help and advice they need at a price they can comfortably afford? Download direct contract. Please note that these example contracts should not replace professional advice.
It is always advisable to speak to an IR35 expert before undertaking any contract work. You can contact Qdos Contractor here. IR35 Contract Reviews Contract reviews can provide you simply with an overall opinion of your contract, or detailed comments on each clause relevant to the review. Free IR35 contract templates Whilst the vast majority of contractors are provided with contracts by clients or agencies, this is not always the case.
Recruitment agency contract template If you have secured your contract job via a recruitment agency, they will most likely give you a written contract. Download agency contract Direct with end client contract template Contracting direct with the end client is gaining traction with many contractors who want to break free from third-party recruitment agencies or umbrella companies. Download direct contract Please note that these example contracts should not replace professional advice.
Previous page. HMRC uses a series of different tests to determine whether contractors should be considered disguised employees, including the following:. While these tests may appear simple at first glance, the legislation remains difficult to interpret in many cases, leaving many corporates and contractors struggling to accurately assess whether working arrangements fall inside or outside of IR In the Autumn Budget, the Chancellor announced that off-payroll working rules for the public sector would be extended to the private sector in April The new rules will apply to medium greater than 50 employees and large companies only.
The implication is that the client organisation that a contractor is working for, as opposed to the contractors themselves, is responsible for determining whether the worker falls within IR35 or not.
This therefore presents a significant financial consequence for companies engaging meaningful volumes of contractors. The new rules are likely to cause a significant shake up across the private sector and many large corporates, including HSBC Bank in the UK, have recently announced they would reduce their use of contractors and look to hire many of these workers as employees to ensure complete compliance and avoid any risk of reputation harm as a result of falling foul of HMRC.
Alongside this recruitment drive, corporates are also likely to switch the procurement of project-related services away from contractors and towards consulting firms operating under a specific SOW. This is likely to present both considerable opportunities, as well as risks, to private sector consultancies. The main opportunities are as follows:. Nevertheless, many small to mid-sized consultancies still leverage an associate model to some degree, drawing upon a pool of independent contractors to support project delivery as they manage their own growth, seek to ameliorate fluctuations in demand, or draw upon specialist expertise on an ad hoc basis as projects necessitate.
Importantly, this associate model exposes consultancies to IR35 risks if these contractors are deemed to be disguised employees.
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