IR35 for Dummies: A Simple Guide for Freelancers and Contractors

Are you a freelancer or contractor in the UK feeling overwhelmed by IR35?

Don’t worry—you’re not alone!

At Suzanne Lock Business Services (SLBS), we understand that navigating tax legislation can be daunting. That’s why we’ve created this straightforward guide to break down IR35 for Dummies, helping you stay compliant without the headache.

Read on to learn what IR35 is, how it affects you, and why partnering with an expert accountant or bookkeeper can save you time, stress, and money.

Ready to take control? Book a free discovery call with us today!

What Is IR35?

IR35, also known as the "off-payroll working rules," is a UK tax legislation introduced in 2000 to tackle "disguised employment." It’s designed to ensure that contractors and freelancers operating through a limited company (often called a Personal Service Company or PSC) pay the correct amount of tax and National Insurance Contributions (NICs).

In simple terms, IR35 determines whether you’re a genuine self-employed contractor or a "disguised employee" who should be taxed like a regular employee.

Since April 2021, the responsibility for determining your IR35 status has shifted to the end client (for medium and large businesses). This means your client decides whether your contract falls "inside" or "outside" IR35, impacting how you’re taxed.

Inside IR35 vs. Outside IR35

• Inside IR35: You’re considered a disguised employee, so you pay income tax and NICs similar to a permanent employee. This often means less take-home pay.

• Outside IR35: You’re a genuine self-employed contractor, allowing you to operate through your limited company, pay yourself a combination of salary and dividends, and benefit from tax efficiencies.

Understanding your IR35 status is crucial to avoid unexpected tax bills or HMRC investigations. That’s where SLBS comes in—we help you navigate these rules with ease.

How Is IR35 Status Determined?

IR35 status depends on several key factors that HMRC examines to assess your working relationship with a client. These include:

1. Control: Does the client dictate how, when, or where you work? Less control suggests you’re outside IR35.

2. Right of Substitution: Can you send someone else to do the work? The ability to provide a substitute indicates self-employment.

3. Mutuality of Obligation (MOO): Is the client obliged to offer you more work, or are you obliged to accept it? A lack of obligation points to being outside IR35.

4. Financial Risk: Do you bear financial risks, like paying for your own tools or training? This supports an outside IR35 status.

5. Integration: Are you embedded in the client’s workforce, like having line management duties? If not, you’re more likely outside IR35.
   

Unsure about your contract? Use HMRC’s Check Employment Status for Tax (CEST) tool for guidance, but for peace of mind, consult a professional. At SLBS, our expert accountants and bookkeepers review your contracts and working practices to ensure compliance.

Why IR35 Matters to You

Falling foul of IR35 can lead to significant financial consequences, including backdated tax payments and penalties. If your contract is deemed inside IR35, you’ll pay higher taxes and lose the tax advantages of operating through a limited company. Plus, many clients apply blanket IR35 assessments to avoid risk, potentially limiting your earning potential.

On the flip side, being outside IR35 lets you maximize your take-home pay through tax-efficient structures. However, achieving and maintaining outside IR35 status requires careful contract drafting and working practices that align with self-employment.

This is where SLBS shines. We don’t claim to have a “magic wand” to keep you outside IR35 (no one can!), but our experienced team can:

• Review contracts to ensure they reflect outside IR35 arrangements.

• Advise on working practices to strengthen your self-employed status.

• Handle tax planning, VAT returns, and HMRC submissions to keep you compliant.

• Support you during HMRC investigations with expert advice.

Common IR35 Myths Debunked

Let’s clear up some confusion:

• Myth: An “IR35 accountant” can guarantee you stay outside IR35.

  
  

  Truth: No accountant can guarantee this. IR35 status depends on your working practices and HMRC’s interpretation, not just accounting.
  

• Myth: Being inside IR35 means you can’t use a limited company.

  
  

  Truth: You can still operate through a limited company, but you’ll need to pay taxes like an employee and report via Real Time Information (RTI) submissions.
  

• Myth: IR35 only applies to big businesses.

  
  

  Truth: If you work for a small business (as defined by the Companies Act 2006), you determine your own IR35 status. For medium or large clients, they make the call.
  

How SLBS Can Help You Stay IR35 Compliant

At Suzanne Lock Business Services, we specialize in supporting freelancers and contractors with expert accounting and bookkeeping services tailored to IR35 challenges. Here’s how we help:

• Contract Reviews: We assess your contracts to ensure they reflect self-employed status and provide actionable advice to strengthen your position.

• Tax Planning: Whether inside or outside IR35, we optimize your tax strategy to maximize your income and minimize stress.

• Compliance Support: From VAT returns to annual accounts and self-assessment tax returns, we handle all HMRC and Companies House requirements.

• HMRC Investigations: If HMRC comes knocking, we provide expert support to defend your IR35 status.

• Fixed-Fee Packages: Our transparent pricing starts at just £95/month, with no hidden fees, ensuring you get value for money.
  

With over 20 years of experience, SLBS takes the complexity out of IR35, letting you focus on what you do best—running your business.

Take Control of Your IR35 Compliance Today

Don’t let IR35 keep you up at night. Whether you’re unsure about your contract status, need help with tax planning, or want to ensure compliance, Suzanne Lock Business Services is here to help. Our expert accountants and bookkeepers are ready to guide you every step of the way.

Book a FREE discovery call with us today to discuss your IR35 needs and explore how we can save you time and money. Let’s make IR35 simple—together!