IR35 legislation. What is it and what impact will it have for engineering contractors?

There is not long to go now until the IR35 legislation will come into effect on the 6th April 2020. This is a legislation that will impact upon all contractors who do not meet the HMRC’s definition of ‘self-employment’. IR35 is designed to assess whether a contractor is genuine rather than a ‘disguised’ employee for the purposes of paying tax.

The issue that it is attempting to solve is that some contractors and hirers have had the opportunity if they so wished, to take advantage of the tax efficiency of working through a limited company, when in all actuality the contractor is essentially working as an employee.

Previously, contractors would be able to have more tax efficient payments and employers would avoid having to pay employer’s National Insurance contributions or have to provide contractors standard employee benefits.

In a nut shell, IR35 will assess whether roles are in actuality for employees. If the role is ‘inside IR35’, then HMRC will determine contractors as an employee and they will face an income tax and National Insurance burden, just as standardised employees do.

If you are unsure whether your job role falls inside or outside the scope of IR35 then you can use the Government’s online tool to check your employment status for tax. https://www.gov.uk/guidance/check-employment-status-for-tax

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