Dave Chaplin, CEO, ContractorCalculator:
Are you caught by IR35? ‘Yes’, you say, ‘I’m caught, as according to my accountant I fail key IR35 tests, like being controlled by my client, having no right of substitution and the rest.’
‘But,’ your lawyer pipes up, ‘you are not inside IR35’, and suddenly you feel a glimmer of hope. Only to be dashed when your lawyer clarifies, ‘Only contracts can be inside IR35, not contractors.’
So, caught, not caught, inside, outside, operating within, operating without, within scope, out of scope – what are you? Confused, probably.
As with any new area of legislation, IR35 practitioners have created their own arcane language to further befuddle already confused contractors, as if HMRC and the courts were not ambiguous enough.
For those new to IR35, and for those not so new, here’s my attempt at introducing some clarity:
- Although contractors are judged on their IR35 status, IR35 actually applies to specific contracts and not the contractor. This means out of three contracts you have in one year, one could be judged to be within the IR35 legislation and two could be judged to be outside IR35
- If you are asked by advisers or fellow contractors ‘are you caught by IR35?’ they mean is your current contract within the IR35 legislation
- ‘Caught by’, ‘inside’, ‘within’, ‘in scope’ and ‘operating inside’ all mean the same thing – the contract is judged to be within the IR35 legislation
- ‘Not caught’, ‘outside’, ‘without’ and ‘out of scope’ also all mean the same thing – the contract is judged to be outside of the IR35 legislation.
But even once you’ve got your head around that, there’s more IR35 terminology confusion to come. You’ll meet contractors who say, ‘I am IR35 compliant’, which they think means they are contracting through their own limited company and that their contract is not judged to be within the IR35 legislation.
But they’re wrong to say that, because their current contract may well be within IR35; they just don’t know it yet. That’s because HMRC and the High Court can judge the IR35 status of a contract in retrospect, ignoring the actual wording of the contract and focusing instead on how you worked and the working relationship you had with your client.
And when umbrella companies say they offer an IR35 compliant payment solution, this is a bit of a red herring because, whilst it is technically true, all contractors working through umbrella companies are paying tax via PAYE as if they are employed and caught by IR35 anyway.
Oh blimey, I started out to clear up confusion over IR35 terminology, and all I’ve done is made my head hurt. Apologies if I’ve done the same to you. I’m off to find a solution to my IR35 headache – aspirin.
If only the solution to IR35 was as simple, fast-acting and easy to swallow...