In simple terms, if you are a limited company contractor, you will need to assess your employment status for tax purposes (IR35 status) and pay the relevant tax to HMRC according to this status. The rules are different if you are working with a client in the public sector, and will change for the private sector from 2021 - see more information on these rules below.
So how do you assess your status?
The legislation is based on historic case law which means that each significant case which goes before a judge can change how future cases are assessed. For the best part of the legislation's life however, there have been three key tests which remain vital in determining status today; the right to provide a substitute worker in order to fulfil the contract, control over how the contract is delivered, and the lack of existence of a mutuality of obligations between the parties.
Using these three tests plus numerous other factors to view the nature of the relationship as a whole, Qdos, HMRC, and the courts can determine the status of a contractor operating as a limited company. This is usually done by reviewing the written terms and conditions of the contract, as well as the working practices which is how the contractor and client operates in reality.
Understanding whether an individual falls under IR35 is complex and can have significant consequences should HMRC determine that tax is owed. To protect from being forced to pay back thousands of pounds, workers should consult specialist experts like Qdos to undertake an IR35 review and consider taking out insurance.