Does an IT Contract Make You Self-Employed?
4 Things to Know About Employment Status
While IR35 has certainly been a sore subject for many of us, there is one good thing to come from the complex legislation – it has highlighted just how important it is for contractors to understand their employment status. Unfortunately, however, knowing whether you’re employed, self-employed, or considered to be an independent contractor isn’t quite as straightforward and easy as it may sound.
Here are 4 things to know about employment status to help clear up any confusion:
1. As a contractor, you are not usually self-employed
By definition, someone that is self-employed will usually run their own business, and be employed by that business within a senior position. To be classed as self-employed, you will generally play a significant and irreplaceable role in the overall performance of the business. Under a standard IT contract, you will typically be working for an ‘outside’ business (not your own business), on a specific, temporary project.
2. You can be a contractor and self-employed at the same time
It’s more complex when you consider that you can be a contractor and self-employed at the same time. This would happen if you were hired as an independent contractor for a company, yet also operated and were employed by your own business. This is a relatively common scenario, as contractors are not subject to the same employment laws as PAYE workers, and can often work for two businesses at the same time.
3. You can also be a contractor and an employee at the same time
And just to add a further layer of complexity, you can also be an IT contractor and an employee at the same time! This would happen if you were employed as a PAYE worker by an agency, who then arranged temporary contracts on your behalf. This is actually becoming much more common, as IR35 complexities are sparking many businesses to hire contractors through umbrella companies to avoid tax responsibility.
4. A contractor can be considered self-employed for tax purposes
Even if you are working as a contractor, HMRC may still consider you to be self-employed for tax purposes. When it comes to tax, your status in employment law doesn’t hold much weight. A contractor will be exempt from PAYE, and will not be provided with any employee rights, such as paid time off or health insurance, for example. The discrepancy between employment law and tax law is evident in IR35 ruling.
While the above is all simple to understand, the problem that we’re facing at the moment is that IR35 legislation has thrown everything up in the air. IR35 has brought to attention the fact that HMRC’s employment status tool, CEST, isn’t always particularly accurate, which means that it can be difficult for IT contractors, employees, and the self-employed to know where they really stand. And at a time when the Government is cracking down on ‘disguised workers’, being compliant is more important than ever.
If you’re unsure of your employment status, it is worth seeking professional advice. Get in touch with us to check your employment status, and learn more about how to ensure you are paying the correct tax.