To remain compliant with the IR35 legislation there are a number of steps that you should consider, especially when entering into a contract.
These steps are:
- Review each engagement for IR35 status – this means having an assessment of both the written terms and your working practices and comparing them against the key factors that determine your IR35 status.
- Check that your working practices line up with what is detailed in your contract – the reality of engagement will weigh heavier than the written terms, so you need to be sure that your contract is an accurate reflection of the engagement.
- Have a record of your due diligence – this may include copies of third-party contract reviews, a Confirmation of Arrangements and/or correspondence that are relevant and could help evidence your position.
- Make sure the correct tax and national insurance is paid for your status – staying compliant with IR35 has been confused with being ‘outside IR35’ but compliance generally means paying the right tax for your employment status. So, if you are working ‘inside IR35’ for an engagement, then you must make a deemed payment.
- Complete regular, up-to-date assessments of your engagements- this helps ensure reassessments throughout the engagement or if there are any material changes.
- Pay attention to any developments or news for any changes or updates to how status is determined.
In April 2021 changes were made to IR35 which mean it is no longer always the contractor’s responsibility to work out their status. However, contractors should still focus on making sure they are compliant within their engagements. It is important to remember that the changes do not apply to any engagements with companies that are classed as small in line with the Companies Act 2006 and contractors are still liable for any services provided before April 2021.
Why is it important to comply with IR35?
Not complying with the IR35 legislation could leave you with expensive costs when defending yourself against an enquiry from HMRC, which quickly add up if you don’t have an insurance policy. Also, you will have the possible burden of paying the cost of any unpaid taxes if you are caught by the legislation which could be substantial. Anyone can be investigated by HMRC if you are found to be inside IR35 but have paid tax as an outside IR35 contractor, you will need to pay back the tax, interest, and any penalties as a result of this.
For more information about the IR35 legislation have a read of our ‘What is IR35?’ guide which will give you all the details you need.
