Contractors: Inside or Outside IR35?

The rules surrounding IR35 were due to change earlier this year, but like many things recently, the coronavirus pandemic saw these changes pushed back to April 2021.

IR35 status is determined by using a variety of acknowledged status tests to determine whether a contractor falls ‘inside’ or ‘outside’ of IR35 rules and should therefore be engaged by the client as a genuine business contract or as an employee.

Inside IR35:

This means that you are considered, for tax purposes, to be an employee.

  • Have you worked previously for your client in the same role prior to working for them as a contractor?
  • Does your client control your workload, your working hours, and is there someone within their organisation who can carry out the works of the contract?
  • Do you work exclusively for this client?
  • Do you use the client’s equipment?
  • Are you paid on a monthly basis?
  • Do you hold Professional Indemnity Insurance and if not is that because any errors are rectified at the client’s expense?

Outside IR35:

  • You are operating as a genuine business and can draw your salary and dividends can form part of this.
  • Do you work for multiple clients?
  • Are you providing a specialist service that your company does not have the skills to carry out?
  • Does your company have its own brand identity, website, marketing?
  • Do you get paid for a contract on completion of the works or at agreed intermediary points?
  • Are you responsible for rectifying errors that occur at your cost?
  • Do you set your working hours and workload?
  • Do you use your equipment or tools to carry out work for the client?
  • If you are not able to carry out the job, do you supply a substitute who can?

Although neither of these lists are exhaustive, they are a good place to start when it comes to determining whether a contractor falls either inside or outside of IR35.

What changes are we to expect in April 2021?

Previously, in the private sector, it has been a contractor’s responsibility to determine their employment status. Now it is up to the client using the services of a contractor. However, it is important to remember that this will only apply to companies with either:

  • Turnover of less than £10.2million
  • A balance sheet total of £5.1million
  • If there are fewer than 50 employees in the business

What does the future hold for contractors and the companies that use them?

Contractors are used throughout industry in the UK but are prevalent in sectors such as engineering and IT. It is more common here to require specialist skills for either short term projects or contracts and many companies are often not able to find the skills they need through direct employment.

Although many contractors work with their clients under genuine circumstances, there is the fear that the new rules may deter companies from using contractor services going forward.

Highly skilled contractors are now considering direct employment, and this is very evident to us within the IT and Technology sector, an area of specialism for Amdas. As such, we now have a pool of candidates with specialist skillsets that are looking for permanent positions. With skills gaps in businesses across cybersecurity, Network Architects, Collaboration Tools, and AWS skills and a growing talent pool of contractors looking for permanent employment, now is the time for businesses to be looking to the future and considering the areas that they need to strengthen with their IT provision.

The coronavirus pandemic has shifted IT focus to homeworking, with many businesses struggling to provide the IT service required to keep their workers online and their businesses safe from an increase in cyber threats. With no end to the pandemic insight and increased knowledge of the importance of changing how companies manage their IT infrastructure, these specially skilled contractors can help businesses to plug the skills gaps that are becoming more evident as we move through this crisis.

Our experienced team is on hand to help you either find your next job role or help your company find the skilled employees you need.