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Cardwell Management Services UK Limited
Regency House, 45-51 Chorley New Road, Bolton, BL1 4QR
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Just4contractors.com > Help & Advice > IR56
IR56, don't you mean IR35?
No, IR56 is a guide to find out whether you are Employed or Self-Employed.
IR56 states that the law for tax and social security legislation does not define 'employment' and 'self-employment'. The Courts have considered the issue, and their guidance on finding out if an individual is an employee or self-employed is known as case law.
IR56 provides a series of questions intended to help you as a contractor identify your employment status as either 'employed' or 'self-employed'.
The questions present only a brief guide and does not (and cannot) cover every situation. The Revenue does admit that the advice cannot cover all situations. However, in most cases, HMRC will seek to prove that a contractor is an employee. If this happens, the contractor will soon be the subject of a self-assesment investigation.
Determining the employment status is fundamental to how IR35 is applied. If you prove that you are self-employed, you can work through a limited company and benefit from tax savings that are available to directors of limited companies.
You should make sure that you are engaged under a 'Contract for Services' as opposed to a 'Contract of Service'. Being under a contract for services means you are supplying your services on a commercial basis to the client, then you are not an employee. These are the criteria that indicate the main pointers towards self-employment:
1. Personal Service - can your company send someone else to do the work if you are unavailable? If yes, and you have a 'right of substitution', this means you are not an employee. However in some cases, clients would want you personally to do the work and will accept nobody else. If that is the case, you will be caught by IR35.
2. Mutuality of Obligation - are you obliged to keep on doing the work, and is the client obliged to keep on offering you the work? If yes, this indicates that you are caught by IR35 and deemed to be an employee. If either you or the client can terminate the engagement this means you are not caught.
3. Direction and Control - does the client instruct you on how to go about doing the work, or do they have the right to do so? A 'yes' answer will indicate that you are caught by IR35. But if you are allowed to use your professional judgement in deciding how to deliver the services, this means you are not caught.
There are still several factors in IR56 that can also point towards self-employment but are not sufficient on their own. Each contract that you have will affect which employment status you fall under, which is why contractors must seek advice from an IR35 expert.
See Also
IR 35
HMRC Compliance
Taxation for Contractors
Choosing the Right Business Structure
Recommended Links
The HMRC Guide to IR 35
Professional Contractors Group (PCG) - support for IR35
No, IR56 is a guide to find out whether you are Employed or Self-Employed.
IR56 states that the law for tax and social security legislation does not define 'employment' and 'self-employment'. The Courts have considered the issue, and their guidance on finding out if an individual is an employee or self-employed is known as case law.
IR56 provides a series of questions intended to help you as a contractor identify your employment status as either 'employed' or 'self-employed'.
The questions present only a brief guide and does not (and cannot) cover every situation. The Revenue does admit that the advice cannot cover all situations. However, in most cases, HMRC will seek to prove that a contractor is an employee. If this happens, the contractor will soon be the subject of a self-assesment investigation.
Determining the employment status is fundamental to how IR35 is applied. If you prove that you are self-employed, you can work through a limited company and benefit from tax savings that are available to directors of limited companies.
You should make sure that you are engaged under a 'Contract for Services' as opposed to a 'Contract of Service'. Being under a contract for services means you are supplying your services on a commercial basis to the client, then you are not an employee. These are the criteria that indicate the main pointers towards self-employment:
1. Personal Service - can your company send someone else to do the work if you are unavailable? If yes, and you have a 'right of substitution', this means you are not an employee. However in some cases, clients would want you personally to do the work and will accept nobody else. If that is the case, you will be caught by IR35.
2. Mutuality of Obligation - are you obliged to keep on doing the work, and is the client obliged to keep on offering you the work? If yes, this indicates that you are caught by IR35 and deemed to be an employee. If either you or the client can terminate the engagement this means you are not caught.
3. Direction and Control - does the client instruct you on how to go about doing the work, or do they have the right to do so? A 'yes' answer will indicate that you are caught by IR35. But if you are allowed to use your professional judgement in deciding how to deliver the services, this means you are not caught.
There are still several factors in IR56 that can also point towards self-employment but are not sufficient on their own. Each contract that you have will affect which employment status you fall under, which is why contractors must seek advice from an IR35 expert.
See Also
IR 35
HMRC Compliance
Taxation for Contractors
Choosing the Right Business Structure
Recommended Links
The HMRC Guide to IR 35
Professional Contractors Group (PCG) - support for IR35