The contract its terms and conditions
Sign on the dotted line
Before you sign on the dotted line you need to make absolutely certain that you check the terms and conditions of your contract.
The terms of your contract (especially in relation to IR35) are important to a contractor as they will affect the amount of tax you pay, and which business related expenses you can claim – both factors will significantly affect how much money you can bring home at the end of the week/month!
How does the IR35 tax legislation affect my contract?
In April 2000 HMRC introduced a piece of tax legislation called IR35. The legislation effectively closed what the government saw as a tax loophole for contractors working in the UK.
Although IR35 affects all contractors working in the UK, it is the terms and conditions laid out in your contract that forms a major part in determining whether you are affected (caught) or not. Contractors ‘caught’ by IR35 will be taxed as an employee and as such pay significantly more tax than a contractor (not caught) who can demonstrate that they are in business on their own.
Determining whether you are caught by IR35 or not (‘inside IR35’) depends on a number of complex factors. In essence the legislation focuses on the relationship between yourself and your end client.
Two important things to remember when considering IR35
- Firstly, IR35 applies to each contract and not to you as an individual. So it is not a matter of thinking, ‘Am I am caught by IR35’? It is more, ‘Is this particular contract caught by IR35’? It is perfectly feasible to have income from two different sources at the same time, one being caught and the other not.
- The second thing to remember is that succumbing to IR35 is not really a matter of choice. The terms and conditions of your contract as well as the way in which you conduct your business affairs, will determine this for you.
The IR35 employment test:
The tests that HMRC uses to determine whether you are caught by IR35 are complex. There are a number of factors that will characterize your employment status, but the key issues in making this decision can be identified by the following. If:
- Your work is under the complete direction and control of your client
- You take no financial risk in accepting the work
- You do not act as though you were in business on your own account
- You are obliged to accept work when it is offered
- Your contract specifies you as the worker and you are unable to substitute etc
Then you will be ‘caught’ by IR35 and taxed as an employee
Can the client / agency help me at this stage?
Ask your client / agency if they can offer you an ‘IR35 friendly’ contract, but bear in mind that your agency is limited by the job specification and HMRC’s strict rules which govern contractual employment.
The terms of your contract must actually represent what you do and how you do it. HMRC will not only look at the wording of your contract but also at the reality of the way that you work and the relationship between yourself and your end client.
Your agency / client should also be able to give you an opinion on the nature of your contract and whether it believes that there is an employment relationship between yourself and your client.
However before you sign anything it is important to contact a Contractors’ Accountant to make absolutely sure that you are going to financially benefit by signing this contract.
How JSA can help
You should never sign a contract without understanding what it is you are signing. For over 18 years JSA has been catering exclusively to the contracting market, helping clients within various disciplines including the IT, engineering, teaching, driving and public sectors.
JSA's IR35 Status Review Unit has extensive knowledge and experience in assessing your contract and determining your employment status. In fact, JSA is one of only a handful of Accounting firms to have been awarded QA status by the PCG in recognition of its expertise on contracting matters, including IR35.
Before you sign anything we urge you to call or email our team to receive a FREE, no obligation consultation. We talk you through any contractual issues you may have and explain the best trading options for you – and also let you know which business expenses you can claim.
Read on...
More information for a First Time Contractor
Trading options available to contractors - Umbrella or Limited Company option?
Umbrella Company vs. Limited Company - which is best for me?
Contractors Umbrella Company – what is an Umbrella Company - exploring the benefits?
Limited Company option - the ins and outs of setting up a company
Introduction to contracting – the pros and cons of contracting
Exploring the pros and cons of contract work – Living the dream and avoiding the pitfalls
The Contracting Basics - what is contracting and is it a viable option?
Securing a contract – contracting a lifestyle choice
For a detailed overview please download JSA's First Timers Guide to Contracting.
You may also find the following pages, guides and testimonials helpful
Our Services – how JSA can help you
A guide to IR35 – what it means and how it affects you
Case studies – find out what our current clients have to say about JSA
Request a call/email back – we can call or email you back at a time that suits you
Talk to one of our experts
Register your interest online now.
Email our advisors at newenquiries@jsagroup.co.uk.
Or call free phone 0800 25 26 40