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IR35 Advice for Contractors

Do you provide your services via an intermediary, such as a personal service company (PSC)? If so, you need to know about the implications of IR35.

What has changed for contractors?

The responsibility for determining whether the services you provide as a worker are inside or outside IR35 legislation, has shifted from your intermediary (Personal Service Company) to the end client (or engager).

If your determination finds that you are inside the new legislation then the responsibility for deducting tax and national insurance contributions will also switch to the fee payer, for example an employment agency such as Millbank.

How have the changes affected contracts?

For any new contracts, your IR35 status will need to be assessed prior to the contract starting and your end client is obligated to tell you the outcome. If the client determines that your contract is inside IR35, you will have a right to appeal the decision in writing within 45 days of receipt, after which the end client would have to consider the reasons for the dispute and decide to uphold or change their decision.

How is IR35 status determined?

When the PSC is determined to be outside IR35, you (the worker representative) are deemed to be genuinely in business of your own account and are therefore not affected by IR35 legislation.

If you are inside IR35, you are deemed as a ‘disguised employee’ (HMRC definition) and IR35 dictates you must pay the same tax and national insurance contributions as an employee (PAYE); Millbank can provide you with a full service of managing a PAYE contract on your behalf.

The HMRC has developed an online tool called CEST (Check Employment Status for Tax) designed to assess tax status, however this tool has proven controversial and there are more prudent determination products in the marketplace to provide a determination.

Millbank are working with their clients to ensure that a Reasonable Care Policy is established and that contractors are informed of this process by the End Client and treated fairly. This will be for existing contractors and future contractors who are engaged. We currently note that legislation has not been published and a new government has not been established. Some clients are deferring their decision until the aforementioned has occurred.

IR35 status can be determined through a series of tests as outlined below (click each title to learn more):

Right of Substitution

Outside IR35: The worker can provide a suitably qualified and skilled substitute to do the work.
Inside IR35: The worker must carry out the work personally.

Supervision Direction and Control

Outside IR35: The worker is not supervised, directed or controlled by the client in how they carry out the work.
Inside IR35: The client directs and controls the worker on how to do the work and supervises the work.

Mutuality of Obligation

Outside IR35: There is no obligation for the engager to offer work, or for the worker to accept work offered.
Inside IR35: The engager is obligated to provide work, and the worker is obligated to accept it.

Part and Parcel

Outside IR35: The worker is easily identifiable as independent from the engager and their employees.
Inside IR35: The worker is indistinguishable from the engager’s employees.

Employee Benefits

Outside IR35: The worker has no benefits such as holiday, sick or maternity pay, or access to amenities such as free meals or staff events.
Inside IR35: The worker has access to holiday, sick or maternity pay, or to amenities such as free meals and staff events.

Financial Risk

Outside IR35: The worker is risking their own money, e.g. by buying their own equipment, paying for training, or reducing their rate in the case of late or unsatisfactory work, and provide for adequate business insurances to manage commercial risks.
Inside IR35: The engager provides financial support for assets needed to complete the job.

Length of Contract

Outside IR35: The work will end after a set period of time or is project based.
Inside IR35: The work is ongoing with no set end date.

Intention of the Parties

Outside IR35: Both parties are aware that the arrangement is business-to-business.
Inside IR35: One or both parties are unaware that the arrangement is business-to-business or sees the arrangement as employer-employee.

Termination Clause

Outside IR35: The contract has a clause wherein either party can give notice to bring the contract to an end, either immediately or at short notice.
Inside IR35: The engager has a right to “dismiss” the worker. A dismissal carries employer/employee connotations.

Are there any exceptions?

If you as a contractor provide services to a client in the private sector classed as a small company, you will remain responsible for deciding your IR35 status. A client is classed as small if it meets 2 or more of the following criteria:

  • Turnover of no more than £10.2 million
  • Balance sheet total of no more than £5.1 million
  • No more than 50 employees

Getting help with IR35

Millbank have worked diligently with their clients in ensuring that all their existing and future contracts are fully compliant with IR35 legislation .

At Millbank our IR35 team are here to offer support and advice to any contractors who provide services to end clients via PSCs.. Contact our team, or call 01928 751000 or email and we will advise your best course of action. The above information is not an exhaustive list but covers the majority of issues.

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