10 things you ought to know about IR35

IR35..…..if you’re a UK based Virtual Assistant (or you’re thinking of becoming one), you will have come across this (confusing) tax rule. I’ve read the information on the HMRC website and was STILL confused, so I asked my good friends at Koffee Klatch to help me understand it.

Koffee Klatch are experts in running a small business and they know the ins and outs of the legalities. They provide the legal contracts to the students in my Virtual Assistant Toolkit VIP programme too.

Here’s their summary of what IR35 means for Virtual Assistants in the UK:

Thinking about IR35 and the changes due to come in in April 2020?

It is easy to get confused. Like anything else to do with law and tax, people get the wrong end of the stick.

It is time we did some myth-busting and jargon-busting.

So you can start to get your ducks in a row.

IR35 is short-hand for the Off-Payroll Working Rules. The rules apply to personal service companies and sole traders – but they apply in different ways. It is not true that only people invoicing through a company need to pay attention.
The rules themselves are not new but who has to apply them is changing.
In April 2019 the public sector had to make assessments to see if their contractors were covered by the IR35 rules. Many were put on payroll (sole traders) or had deductions made from their invoices (personal service companies) and some left the sector causing a shortage of certain skilled workers.
In April 2020 this regime is extending to the private sector with a size threshold
The size threshold is not about who is doing the invoicing (the service provider) but who is doing the paying (the client).
If the client is a small company (which means they have to meet two or more of the tests for a small company) the client does not have to make an assessment.
The test for the client to be exempt from making the assessment is they have to be two of:
- Employ no more than 50 people
- Annual turnover of no more than £10.2m
- Balance sheet worth no more than £5.1m
No personal service company or sole trader is exempt from IR35. If you are doing business with a small business that is exempt from doing the test then it is your job to assess your own status under the relevant rules.
Some large companies such as Barclays have decided not to bother to assess people at all and simply insist their service providers use umbrella companies and invoice through them. We don’t know how others will respond.
KoffeeKlatch customers can get support on this and a lot more in the KoffeeKlatch customer group.

Small traders and IR35

So if you are invoicing a sole trader or a small company client then nothing changes for them or you in April 2020. The situation remains as it has been for years. This may change in due course as the Government has a habit of reducing thresholds – but it won’t happen in April 2020.

Accidentally falling into IR35

For most small business owners the issue is making sure you are not caught within IR35 by mistake when dealing with clients who are going to make an assessment. There are a whole host of tests of who is in business and who is a ‘worker’ or in disguised employment. Whilst no one factor works on its own a critical element is being able to send a substitute (and having done so).

This can be a hot potato particularly when you balance the fact you must not be controlled like an employee (and be able to send a substitute) with controlling the personal data flow for GDPR.

It is vital that your contracts are set up correctly (and operated correctly). Whilst you should never change an arrangement deliberately to avoid IR35 if your business model is legitimately one of self-employment and matches the criteria you will not usually be caught up in wrong assessments.

If you want the taxman to view you as the boss of your own company you have to act like it, with all that involves. You need to act like a boss and be in control, able to send substitutes, provide your own equipment, insurance, market your own business and more.

IR35 and contracts

Setting yourself up properly in the first place is a great place to begin. KoffeeKlatch terms of business and associate agreements are designed to keep you in control when you should be and keep your associates in control when they should be.

If you are a KoffeeKlatch customer within your support period – come on over to the KoffeeKlatch support group and see our resources on IR35. Let’s start getting your ducks in a row!

If not check out our contracts and let’s start getting your set up properly.