Employment Status Assessment
To make matters more complicated, the Courts, Lawyers and HMRC use a separate terminology compared to the rest of us. Therefore throughout this micro site, particularly when we have quoted from case law or HMRC, you will see the terms ‘Contract for Service’ and ‘Contract of Service’. Whenever you see these terms remember:
Contract of Service means the same as Employed or being an Employee;
Contract for Services means the same as Self Employed or ‘being in business on your own account’.
Incidentally, a Sole Trader is someone who works for themselves, often by way of a trade or profession. Sole Traders are self employed workers.
The Link with IR35
As you consider the professional Freelance world it is quickly obvious that you do not have the benefit of a benevolent employer. You accept that you take an assignment in the knowledge that at the end of the fixed term the assignment ends and you will have to look for new work elsewhere.
However, and for reasons explained in ‘Where IR35 Came From‘, government and HMRC do not simply accept the fact that you are engaged on a fixed-term assignment as evidence that you are self employed. They look at the nature of the services that you are providing to the hirer and assess it against the status ‘tests’ that have been established by the courts. If these tests, when applied to your individual assignment, indicate that you are akin to an employee, that assignment is deemed to Fail IR35. On the other hand, if your assignment indicates that you have a self-employed relationship with the Hirer, you are deemed to Pass IR35.
Pass IR35 means Self Employed, or outside of IR35;
Fail IR35 means Employed, or inside IR35.
To fully understand the status of your assignment you need to consider the working relationship with the Hirer against the tests established by the Courts. These are thoroughly examined in the Assessing IR35 Status section of this site.
Once you have decided on your relationship with your Hirer you must ensure that the ‘Assignment Contract’ that you are signing/have signed truly and accurately reflects this position.
For further background reading please visit hmrc.gov.uk/ir35
Once you have decided whether you Pass or Fail IR35, you should communicate with your Accountant so that they can calculate your taxes correctly. Remember, each contract should be individually assessed on its merits.