There are two important pieces of legislation that need to be considered when operating through your own Limited Company:
IR35 is a controversial piece of legislation which is used to determine whether a worker is in business on their own account (outside of IR35) or operating as a ‘disguised employee’ (inside IR35).
The Agency Workers Regulations is a new piece of legislation that is designed to protect the interests of individuals who work through Employment Agencies and give them rights equal to those of permanent employees in comparable positions.
It was previously considered that putting earnings through a Limited Company would act as a ‘get around’ of the new AWR. However, final guidance published in May 2011 confirmed that this would not be the case:
“Simply putting earnings through a limited company would not in itself put individuals beyond the possible scope of the Regulations.”
The guidance then goes on further to state that only workers genuinely operating outside of IR35 would be exempt from the AWR:
“The definition of an agency worker excludes those who are in business on their own account where the status of the hirer is that of a client or customer of a “profession or business undertaking” (i.e. a genuine business to business relationship).”
The AWR goes on to clarify the IR35 legislation and make it even more unambiguous as to who will fall outside of IR35. It is now more important than ever to review your working practises if you are currently operating outside of IR35 or, considering doing so.
If the majority of the statements below do not apply to you, then you will fall inside of IR35:
- you bid or provide quotes to secure work
- you have specific targets or projects to complete, although you decide when and how to do the work
- you are not under direct supervision when you are working
- you do not have to perform the work personally - you can hire someone else to do the work or engage helpers at your own expense
- you submit invoices for work you have completed
- you are responsible for paying your own tax and National Insurance
- you do not receive any holiday pay or sick pay when you are unavailable for work
- you provide major items of tools, equipment or materials that are a fundamental requirement to complete a job
- you have to correct unsatisfactory work in your own time and at your own expense
- you are responsible for meeting any losses, as well as taking the profits from your work
- you provide your services, or could provide your services, to a number of different clients or customers
- you operate under a contract (maybe called a 'contract for services' or a 'consultancy agreement') which describes you as 'self-employed', a 'consultant' or an 'independent contractor'
These tests look at all aspects of the relationship, including the physical working environment so simply wording the contract to appear outside the scope of the legislation will not work:
“If the arrangements do not reflect the reality of the relationship (e.g. despite the wording of a contract, the actual reality is that the individual is in not in business on their own account and they work under the supervision and direction of the hirer) or are an avoidance tactic, then individuals are likely to fall into scope of the regulations.”
This new piece of legislation now puts even more responsibilities on your shoulders if you are operating through your own Limited Company; ContractorUmbrella can relieve you of this pressure with its industry renowned service and leave you to sleep easy at night.
You can contact one of our expert advisors on 01206 713 680 or email us firstname.lastname@example.org.