Ir35 Impact As A Result Of Your Employment Status

What is your current Employment status?

What is your current Employment status?

Which one of the two are you? Employed or Self-Employed?

Articles Series - Part One of Two

This article is the first part of two that looks at the employment status question.

Fairly insignificant on its own, however get it wrong and it can make a huge difference to the tax and Ni that you may end up paying.

There are various wages calculator tools on the web where you can run your own scenarios and see the differences.

This article will provided general guidance however a good IR35 accountant or will be able to advise on your personal circumstances.

All too often contractors who are aware of IR35 have to wrestle and establish their own employment status as it determines whether they are in or out of IR35.

Having read this article you should have a better understanding of what are the foundations for determining employment status.

1. It Determines Tax and NI

A worker's employment status will determine the charge to tax on income from that employment or self-employment. It will also determine the class of NICs, which are to be paid.

2.It is not a matter of choice

A worker's employment status, that is whether they are employed or self-employed, is not a matter of choice. Whether someone is employed or self-employed depends upon the terms and conditions of the relevant engagement. The tax and National Insurance contributions (NICs) rules do, however, contain some special rules that apply to certain categories of worker in certain circumstances.

3.The employer is responsible for determining status

If you work for someone else, it is important to know whether you are working for that person in an employed capacity or in a self-employed capacity as an independent contractor. If you are an engager, it is your responsibility to correctly determine the employment status of your workers.

4.The reality of the Relationship matters

In order to answer this question it is necessary to determine whether the person works under a contract of service (employees) or under a contract for services (self-employed, independent contractor). For tax and NICs purposes, there is no statutory definition of a contract of service or of a contract for services. What the parties call their relationship, or what they consider it to be, is not conclusive. It is the reality of the relationship that matters.

In order to determine the nature of a contract, it is necessary to apply common law principles. The courts have, over the years, laid down some factors and tests.

In the second of this two part article we will consider the criteria that provides a yardstick for establishing employment status.

by: Sol Mercer

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