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Project Support Officer (SEND and Education)

Wokingham Borough Council logo

  • Wokingham, Berkshire
  • £26,421 - £28,770 Per Annum, Plus Benefits
  • Wokingham Borough Council

We have a brand-new opportunity for a Project Support Officer to join our Children’s Commissioning Team

View details Project Support Officer (SEND and Education)

  • 6 days left
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Transformation & Project Lead (SEND and Education)

  • £49,498 - £54,707 Per Annum, Plus Benefits

We have an exciting new opportunity available for a Transformation and Project Lead to join our Children’s Commissioning Team

View details Transformation & Project Lead (SEND and Education)

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Hertfordshire - Social Worker Adv Prac- Hospital Team

Tripod Partners logo

  • Valley Hospital, Hertfordshire
  • Tripod Partners

Hertfordshire - Social Worker Adv Prac - Hospital Team Location:Apsley 1, Brindley Way, Apsley, Hemel Hempstead Pay rate: £38PH Contract: Initia...

View details Hertfordshire - Social Worker Adv Prac- Hospital Team

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Walsall - Social Worker - Adults Learning Disabilities

Tripod Partners logo

  • £30 per hour.

Walsall - Social Worker - Adults Learning Disabilities Location: Walsall Pay rate: £30PH Contract: Initial 3 months of 37 Hours per week – On-go...

View details Walsall - Social Worker - Adults Learning Disabilities

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Airport Social Worker

Ad Warrior logo

  • Hounslow (City/Town), London (Greater)
  • £34,000 pro rata per annum

Heathrow Travel Care are an airport base social work charity.

View details Airport Social Worker

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Children’s Social Worker (London) UASC

Dorset Council logo

  • £38,166 - £48,063
  • Dorset Council

Are you seeking a rewarding career in Children’s Services? Be part of designing social work for the future.

View details Children’s Social Worker (London) UASC

  • Expiring today
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Hertfordshire - Social Worker - Team Manager- Adults Post Hospital Review Team

  • Apsley, Hemel Hempstead, Hertfordshire

Hertfordshire - Social Worker - Team Manager- Adults Post Hospital Review Team Location:Apsley 1, Brindley Way, Apsley, Hemel Hempstead Pay rate:...

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Hertfordshire - Social Worker Deputy Team Manager- Hospital Team

  • Barnet & Chase Farm Hospital

Hertfordshire - Social Worker Deputy Team Manager- Hospital Team Location:Apsley 1, Brindley Way, Apsley, Hemel Hempstead Pay rate: £35PH Contra...

View details Hertfordshire - Social Worker Deputy Team Manager- Hospital Team

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Hertfordshire - Social Worker Deputy Team Manager- Adults Post Hospital Review Team

Hertfordshire - Social Worker Deputy Team Manager- Adults Post Hospital Review Team Location:Apsley 1, Brindley Way, Apsley, Hemel Hempstead Pay ...

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Supervising Social Worker - IFA

Social Work Partners logo

  • £32,480-£38,570
  • Social Work Partners

Supervising Social Worker Darlington Rates £32,480-38,570 Contact: [email protected] 07721 454 993 Social Worker Partners are currently...

View details Supervising Social Worker - IFA

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  • England - Various

Supervising Social Worker Harrow Rates £28000-38000 Contact: [email protected] 07721 454 993 Social Worker Partners are currently recru...

  • 12 days ago

Supervising Social Worker Lancashire Rates £32,480-38,570 Contact: [email protected] 07721 454 993 Social Worker Partners are currently...

  • 2 days left
  • Nottinghamshire
  • £28000-38000

Supervising Social Worker Nottinghamshire Rates £28000-38000 Contact: [email protected] 07721 454 993 Social Worker Partners are curren...

  • lincolnshire

Supervising Social Worker Lincolnshire Rates £28000-38000 Contact: [email protected] 07721 454 993 Social Worker Partners are currently...

Assessment Social Worker

  • North East England

Assessment Social Worker North East England £45.50 per hour Contact: [email protected]/ 07721 454 993 Social Work Partners are working ...

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Social Worker

Wiltshire Council logo

  • Trowbridge, Wiltshire
  • £41,069 - £43,104 (inclusive 10% market supplement)
  • Wiltshire Council

Our ‘OUTSTANDING’ Children's Services would like to welcome a Social Worker

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Family Support Worker

  • United Kingdom
  • £14-17 per hour

Family Support Worker £14-18 per hour Contact: [email protected] Social Work Partners are currently recruiting for a number of family ...

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Hertfordshire - Social Worker- Adults with Learning Disabilities

  • Farnham House, Six Hills Way, Stevenage

Hertfordshire - Social Worker- Adults with Learning Disabilities Location:Farnham House, Six Hills Way, Stevenage Pay rate: £32PH Contract: Init...

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Hertfordshire - Social Worker- Childrens Special Adolescent Team

Hertfordshire - Social Worker- Childrens Special Adolescent Team Location:Farnham House, Six Hills Way, Stevenage Pay rate: £32PH Contract: Init...

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Hertfordshire - Social Worker- Childrens Assessment Team

Hertfordshire - Social Worker- Childrens Assessment Team Location:Apsley 1, Brindley Way, Apsley, Hemel Hempstead Pay rate: £32PH Contract: Init...

View details Hertfordshire - Social Worker- Childrens Assessment Team

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Outside IR35: Eighteen Ways Contractors Can Stay Outside IR35

Outside IR35

Outside IR35

Advice for contractors (courtesy of the special commissioner).

Outside IR35 – Here are the pointers for ordinary contractors, that the Special Commissioner considers helps their case for being outside IR35. They come out of the Lime-IT case.

1) If you vary your hours instead of working the standard week, that will help greatly to be outside IR35.

Try to work a different number of hours than the company’s standard week as much as possible. Employees work the standard week.

2) Make sure that when you have a contract that it states the services that you will provide and the tasks that you will be doing.

This makes you different from an employee, according to the Special Commissioner. A company can’t make you do anything that is outside the terms of your contract, like they could an employee of theirs.

Contract for 6 Months

3) When you have a contract for six months, make sure that it states that this is just an estimate for the work. Try and make sure that you don’t leave on exactly the end date.

Lisa’s contract was terminated a week early and that helped to show that the year’s contract was just an estimate. Employers can’t do this with their employees. That helped show she was outside IR35.

4) If you renew the contract, make sure that you state explicitly what work the new contract is for.

Hopefully, it will be at least slightly different from the work you did as it states on your initial contract.

Have a Substitution Clause in Your Contract

5) You pretty much have to have a substitution clause, i.e. that you can get somebody else to step in to do your work for you.

However, you can also stipulate that the end-employer has the right of refusal on whoever you might send as a substitute.

It’s unlikely that they will ever trigger this, but the court and the HMRC have to assume good faith. That it would, therefore, happen if ever there was a need.

6) Set up your own web site, marketing yourself to local businesses. Disguised employees seldom do this, but small businesses do. That would help shw you were outside IR35.

7) Make sure that you have an office set up elsewhere with a desk, a computer, and a separate phone, even if it is just part of your house to be outside IR35.

Pay For Your Own Travel Between Sites

8) Pay for your own travel between the different sites of your clients to show you are outside IR35.. Employees never do that, but small businesses do. You can set it off againts tax.

9) Try to do something specific for a client and different from employees of the company. It doesn’t look good to be part of a team doing exactly the same as the permanent employees (although this can’t always be done).

IR35 Factors

10) If you have to wear a badge at work, make sure that it has your company name on it as well as your name, and that it says you are a contractor to be sure that you are outside IR35.

11) Make sure that your phone number in the internal directory names your company as well as yourself (which it wouldn’t do for employees).

Use Your Company Name in Email Address

12) Make sure that the email address that they give you at work has your company name in it, and not just your own name.

13) If contractors are not able to use the sports facilities at a client’s, don’t ask for special permission. Not being able to use the facilities differentiates you from an employee. You don’t want this to put you outside IR35.

14) The fact that you don’t get holiday pay or sickness benefit will help differentiate you from an employee in the eyes of the Special Commissioner, and now the Inland Revenue.

Use Your Own Personal Computer

15) To show you are outside IR35, use your own computer at your client’s site if you can, rather than your client’s. Even if you have to use your clients PC most of the time, use your own for some of the time, e.g. for documents. An employee wouldn’t be expected to buy their own computer equipment.

Staying Outside IR35

16) If your agency ever doesn’t pay you on time, kick up a stink about it by writing a letter to them to show you are outside IR35. They have to pay within 10 days by law. Employees always get paid on time, small businesses sometimes have trouble getting paid.

Have Your Own Company Business Cards

17) Make sure you have your own business cards. Employees don’t have their own business cards, merely their company’s. They don’t cost much.

18) Make sure that you charge VAT, and have it stated in the contract, even if you are not above the threshold. Employees never charge VAT – only businesses.

Showing you are outside IR35 is not an easy business but if you follow these pointers, you are far more likely to be proved outside IR35.

Accountancy and Umbrella Companies

If you want to cut your Accountancy Fees use Aardvark Accounting which uses apps to help you cut costs.

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very informative. I think the bottom line is for the contractir to think they are a business at the end of the day.

Interesting…. pt 16 ) They have to pay within 10 days by law….. which law is this?

I think that should say 30 days.

WRT Pt #7, I guess that having a flat to which both HMRC & the Pensions Regulator both regularly communicate is of greater benefit than merely a room set-aside for office purposes?

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IR35 changes for social workers

A large number of us have encountered lots of new challenges since the IR35 changes came into place in April 2017.

So what do the IR35 changes actually mean?

To summarise, social workers who were trading as a LTD Company are now seen as being ‘employees’ for the local authority we are working with . We should therefore receive the same treatment and benefits as all of the employees working at the Council.

I can’t tell you how many times I completed the online tool provided by HMRC which would come out saying that I did not fall within IR35. It really should be based on a case by case but people have been to scared to challenge this and take it any further.

Whilst I understand that IR35 does impact on a large percentage of independent social workers I strongly believe that it is not all of us. I remain perplexed with why the focus has been social workers opposed to other professionals or politicians in our society (but I will stop there before I rant).

Are we now treated as employees?

Unfortunately I was hoping to say that yes we are and there isn’t still the divide there was around agency social workers and permeant workers.

It is important to note that Local Authorities do differ what they provide their agency workers.

What should we now be entitled to? (these are still debatable);

  • Similar caseload to permanent staff
  • Equipment provided e.g. laptop/ phones/ working at home access
  • Access to mandatory training
  • Maternity/ paternity pay
  • Access to a pension
  • Holiday pay

And the list could go on.

What does IR35 mean financially for agency social workers?

The Employment Agency take off us an hourly amount for Employers National Insurance Contribution which for the average social worker will be around £3-5 per hour. Note LTD Company workers will still pay tax at 20% and from their business Corporation Tax (19%) and accountancy fees (around £100 per month) on top of this amount.

The agency will now pay our tax straight to HMRC. I am aware that so many Social Worker were paying different rates and even between other associates at work with different accountants people were coming out with a different amount every month.

So yes, we are not as financially was well off as we would have been previously been:

So, what should we do?

Try and find roles which are not deemed to fall within ir35.

A) The important thing to note is that if the Local Authority has become a Trust then this role does not fall within IR35 and you will then be on the higher pay rate.

Work out what the best financial option is for you

It still makes financial sense for me to remain an agency social worker. I will still come out with more money and more say in what I do and when I work.

B) Should I go agency under a LTD Company, Umbrella Company or PAYE?

For me personally I am now making the move across to an Umbrella Company and after a lot of research I now feel confident in the decision I have made and who I have chosen to go with.

Please, please, please be careful what Umbrella Company you go with. My advice is, do no go with the loan based Companies, this is not a good choice. Yes, you may come out with a higher rate, but ask yourself why?

Its is also important that you seek advice from an accountant for professional advice.

If you have any questions or would like some support with different Umbrella Companies or agencies  just send me a message .

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Information is power | Think for yourself

Inside or outside of ir35

IR35 inside vs outside

Navigating the world of “IR35 inside vs outside” can feel a bit like learning a new dance. At first, the steps seem confusing, but with a bit of guidance and rhythm, it all starts making sense.

IR35 isn’t just a pair of random letters and numbers; it’s a tax legislation that has contractors buzzing – and not just because of the caffeine.

Whether you’re a seasoned pro or a newbie on the block, understanding the ins and outs of IR35 is crucial. Stick with me, and we’ll groove through the complexities, leaving you with a clear understanding and maybe even a few fancy footwork moves for your next financial chat!

Table of Contents

Key Takeaways

  • Defining the Terrain : “ IR35 inside vs outside ” marks two distinct contractor classifications. The “inside” suggests a tax status akin to an employee, while “outside” indicates independent business operations.
  • Tax Implications : Being “inside IR35” comes with tax and National Insurance deductions similar to regular employees. In contrast, “outside IR35” provides more autonomy over financial structures and possible tax advantages.
  • Contractual Nuances : It’s not just your written contract that determines your IR35 status. The true nature of your working relationship, daily practices, and the client’s control level can influence the outcome.
  • The MOO’s Influence : The Mutuality of Obligation (MOO) plays a significant role in IR35 evaluations. A strong presence of MOO, where continuous work is expected and there’s an obligation to accept it, can suggest an “inside IR35” setting.
  • Responsibility and Risks : Accurately determining your IR35 status is crucial. Misjudgements or overlooked details can lead to potential backdated tax bills and unforeseen HMRC inquiries.
  • Tools and Expertise : Tools like the HMRC’s CEST can offer initial guidance, but they aren’t foolproof. Combining them with expert advice can yield a more holistic view and clear direction.

Inside IR35: the “employee” label

Understanding the basics Navigating the world of IR35 might seem daunting at first. However, the term “inside IR35” is quite straightforward. It essentially means that, in the eyes of tax authorities, you’re seen more as an employee than a business owner, even if you’re freelancing or contracting .

It’s a bit like being a superhero in disguise, but everyone still recognizes your true identity.

Tax talk When you’re “inside IR35”, your earnings undergo the same routine as regular employees. Before you even get a glimpse of your money, deductions for tax and National Insurance contributions are already in motion.

Picture this: you order a pizza, expecting all the slices, but one’s already gone when it arrives. That’s the tax slice in action.

Who’s taking the slice? Now, you might wonder who’s behind this pizza heist. If you’re collaborating with public sector clients or sizeable private sector companies, they’re typically the ones ensuring your tax deductions. More often than not, there’s a middle entity involved, perhaps a recruitment agency. In official terms, this system goes by the name PAYE (Pay As You Earn).

Dodging the curveballs Venturing into the world of contracts, one should always be prepared for a few surprises. You might step into a contract thinking you’re safely “outside IR35”. But tax authorities have a knack for revisits and challenges. If they pin you “inside”, brace yourself for backdated tax bills. It’s akin to a plot twist in your favourite show – unexpected and sometimes a tad overwhelming.

Outside IR35: operating as a genuine contractor

Decoding the definition Being “outside IR35” is like having a badge that reads “genuine business owner”. You’re not just freelancing or contracting; you’re viewed as someone running a bona fide business. In the tax world, this distinction means you’re operating independently, rather than just being an extension of someone else’s operations.

Relishing tax flexibility The “outside IR35” realm opens up a world of tax flexibility. Contractors here have the liberty to draw income as dividends, tailor their tax management, and carve out a tax structure that suits their unique needs.

It’s akin to having the freedom to paint your canvas the way you want, rather than filling in a predetermined sketch. This autonomy allows contractors to align their financial structures with their specific circumstances, optimizing their take-home pay.

Responsibility comes calling However, with this freedom also comes the weight of responsibility. If you’re engaged with public or medium-large private sector clients, they play a significant role in determining your IR35 status.

On the flip side, when working with smaller clients, the onus of determining IR35 compliance often falls on you. It’s essential to be vigilant and ensure that the way you work genuinely reflects your “outside IR35” status.

And a word of caution: even if you start off with a clear “outside IR35” classification, unexpected HMRC inquiries can arise, scrutinizing your working practices.

Making sense of IR35 status

Who’s holding the compass? Determining your position within the IR35 framework isn’t solely about the ink on your contract. It’s also about the day-to-day reality of your working relationship. While your contract might label you as a freelancer, if in practice you’re clocking regular hours and taking directives like a traditional employee, it might send mixed signals regarding your IR35 status.

Ensuring you’re on the right track involves a mix of regular contract reviews and staying attuned to the nature of your working practices. Think of it like orienteering; the map (your contract) and the terrain (your actual work conditions) should both guide your journey.

The MOO factor Dive a bit deeper, and you’ll come across something called the Mutuality of Obligation, often shortened to “MOO”. To break it down, consider a mate who expects you to be at every gathering, no questions asked.

After a while, it feels less like a casual invite and more like an obligation, doesn’t it? Similarly, in contract terms, if there’s a mutual expectation that you’ll always be available for work and that the client will always provide it, it can lean towards an “inside IR35” classification.

On the other hand, if there’s no binding obligation on either side, it’s a sign you’re operating more like a genuine business, hinting at an “outside IR35” status. Recognising the intricacies of MOO is essential to ensure you’re not inadvertently side-stepping the boundaries.

Staying on the right side of tax laws

Using tools to your advantage Navigating the IR35 landscape would be a lot trickier without some handy tools. One such tool is the CEST (Check Employment Status for Tax) provided by HMRC. It’s a bit like a quiz where your answers can help pinpoint your IR35 status.

While it’s a helpful starting point, don’t rely solely on it. It’s best paired with professional advice and regular contract reviews to ensure you’re not unknowingly straying into risky territory.

The importance of human touch While tools are great, there’s no replacement for good old human expertise. Whether it’s discussing with peers, seeking guidance from experienced contractors, or consulting with professionals, getting a human perspective can often shed light on grey areas.

Remember, it’s not just about the letter of the law; it’s about its spirit. Real-life experiences, case studies, and expert reviews can provide insights that no online tool can.

1. Is inside IR35 worth it? It depends on individual circumstances. Being “inside IR35” offers some predictability in income, resembling a traditional employment setup. However, it may come with higher tax deductions compared to operating outside of IR35. While it might be suitable for some, especially those who value consistency, others might find the financial structure of “outside IR35” more advantageous.

2. What does it mean to be outside of IR35? Being “outside of IR35” means you’re seen as a genuine business entity in the eyes of tax authorities. This allows more flexibility in how you manage and structure your finances. It typically suggests a business-to-business engagement, where the contractor has more autonomy and bears a higher financial risk.

3. What does it mean to be inside IR35? If you’re “inside IR35”, tax authorities view you as an employee for tax purposes, even if you’re working as a freelancer or contractor. This classification impacts your tax deductions, making them similar to those of regular employees.

4. How much tax do you pay inside IR35? Tax deductions for those “inside IR35” are similar to regular PAYE (Pay As You Earn) employees. This means tax and National Insurance contributions are deducted from your earnings before you receive them. The exact amount will vary based on the specific contract rate and individual circumstances.

5. What is the disadvantage of inside IR35? The primary disadvantage of being “inside IR35” is the potential for higher tax deductions compared to operating “outside IR35”. Additionally, those inside may not have the same business expense allowances or the flexibility in financial structures that those outside enjoy.

6. Should I avoid inside IR35 contracts? It’s essential to evaluate each contract based on its merits and your specific circumstances. While “inside IR35” contracts might have higher tax deductions, they might offer other benefits like consistent work or a stable income. It’s always a good idea to seek expert advice to make informed decisions.

Conclusion: mastering the IR35 dance

Understanding “IR35 inside vs outside” is more than just learning definitions; it’s about diving deep into the nuances of tax and contractual obligations. It’s a dynamic landscape, always shifting with new regulations and case laws.

Just as a dancer must be attuned to changes in rhythm, professionals need to stay updated with these changes. Remember, while there’s guidance available, the responsibility to understand and comply with IR35 rests on your shoulders.

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Accessibility

How to be IR35 compliant through a Statement of Work (SoW)

With businesses struggling to understand what constitutes ‘inside’ or ‘outside’ of IR35 legislation, a Statement of Work model and approach to project management can help ensure IR35 compliance when engaging interim managers or a consultancy partners.   

What is a Statement of Work?

A Statement of Work (or SoW) is a legally binding, contractual agreement which is used to define and measure the delivery of a piece of work – the project or outcome.   

A SoW should clearly state the specific set of activities (deliverables) that the supplier (PSC worker or consultancy) is responsible for completing. It should further detail the duration of the project/engagement and document how and when payments will be made. All this activity will be based against completion of specific milestones and can be paid on a time and materials, capped T&M or fixed price basis.   

The importance of IR35 changes  

IR35 is a piece of anti-avoidance tax legislation introduced in April 2021. It only applies to contractors who supply their services through a limited company (also referred to as ‘Personal Service Company´ or ´PSC´).   

IR35 requires the PSC to pay equivalent employment tax as directly engaged employees if the reality of the work is akin to employment – aka disguised employment.  

Historically, it was always the responsibility of the PSC to assess whether their arrangement fell within the IR35 rules and to pay any employment taxes due if deemed inside IR35.

However, this changed in 2017 for the public sector when the off payroll working rules were introduced. The burden of assessing whether IR35 applied moved from the PSC to the end-client and the responsibility for making income tax/NIC deductions passed to the party paying the PSC (typically the end client or recruitment agency).   

Changes to the IR35 legislation will extend the off-payroll rules into the private sector for all medium and large companies that engage with PSCs. Where an end client buys a SoW style service, it will not have the obligation to assess the IR35 status of the PSC contractor(s) involved in providing the service. This will be the responsibility of the provider of the SoW service (who becomes the end client).   

How to be IR35 compliant through a statement of work approach   

When used correctly, the SoW model will ensure outside IR35 compliance for all PSC workers provided as part of the service but merely labelling an assignment as a SoW will not be enough – the SoW must be legitimate:  

  • On the client side, where a piece of work is required that can be measured on a set of outcomes, with a definitive end date and a set of milestones (yard sticks) this will lend itself well to the SoW model.
  • For the PSC contractor, the SoW model provides the ability to operate without any control/direction and to deliver freely against the client’s requirements. 

How to write a statement of work that’s IR35 compliant

When writing a statement of work that’s compliant within IR35 legislation, it’s important to include the following:

  • Scope:  Overview of the whole project/set of outcomes required, detailing what the client wants and expects to see upon completion
  • Deliverables:  The actual output required to be provided by the PSC as part of the engagement, these can be incremental (as the project progresses), total (at the end of the project) or most commonly a mixture of both
  • Milestones:  The measurement of progress/outcomes which often relates to the trigger of payments based on successful completion
  • Dependencies:  What we expect/need the client to provide in order for the PSC to complete an outcome/milestone/deliverable. Any dependency failure should not impact the financial position of the SoW provider/PSC.
  • Caveat/assumption:  A set of conditions we make in order to define the SoW deliverables and milestones, the vaguer the client’s requirements, the more conditions we might look to include to base our solution (and cost) on.

Developing your statement of work template

A statement of work template is a communicative tool that will support the project manager and dependents so that all stakeholders remain informed, thereby enabling the success of the project. When prepared by the consultancy partner or interim service provider and is deemed commercially and legally binding, it can support IR35 compliance.

social work projects outside ir35

How to stay outside of IR35  

The true requirements to be to be determined as ‘outside IR35’ are:  

  • Zero Supervision Direction and Control (SDC) on the activity being undertaken by the PSC Contractor. The client must facilitate the correct working practices and culture for the PSC Contractor to operate freely in achieving the defined outcomes (the deliverables).
  • The PSC has the freedom to deploy, as it deems appropriate, any suitable replacement (i.e. it has the right to use a substitute contractor) or possibly add more people to the project/outcome – at the PSC’s cost. Critically important is that the PSC pays the costs of any substitute PSC directly themselves.
  • The PSC should risk incurring financial impact/ hardship for any failure arising in the delivery of any outcome for which they are accountable & responsible. Of course, if a failure can be tracked back to the client failing to provide something required for delivery – the PSC should not suffer.

Taking all of the above elements, detailing and documenting them well and in-turn defining payments based on performance will all help to ensure any PSCs are operating outside of IR35. By further including a clause in the SoW holding back an element of payment (up to 25%) until the client has signed-off on successful completion of the project clearly demonstrates financial impact should sign-off not be gained.  

For a more detailed report into this legislation of the IR35, download our official report.  

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What does Outside IR35 Mean? Everything You Need to Know

What does Outside IR35 Mean? Everything You Need to Know

While navigating the complex web of tax regulations and employment status, one phrase you could come across regularly is Outside IR35. But what does it really mean, and why is it important for contractors and businesses to understand? Our comprehensive guide will equip you to navigate the complexities of this tax law and understand the concept of Outside IR35.

Understanding IR35

IR35 addresses tax avoidance in the UK, targeting contractors providing services through intermediaries while functioning as employees. And understanding Outside IR35 extends beyond mere compliance, potentially impacting both financial planning and employment arrangements.

Outside IR35 Meaning

Prior knowledge about  what is IR35 is necessary in order to fully grasp the meaning of the term Outside IR35. IR35 is a tax legislation that aims to prevent contractors from avoiding tax by working through an intermediary, such as a limited company or a sole trader business. According to IR35, a contractor is either considered an employee for tax purposes or is legitimately self-employed (therefore eligible for any applicable tax benefits).

The term Outside IR35 refers to a contract that, after taking a number of variables into account, indicates that the contractor is not regarded as an employee for taxation purposes and, as a result, is not required to pay income tax and national insurance contributions in the same manner as an employee. Rather, they receive gross pay and are in charge of handling their own tax matters.

Outside IR35 has several financial advantages for the contractor. Because dividends are taxed at a lower rate than income, contractors can take out a small salary from their business and use the remaining funds for more effective tax planning.

Outside IR35 Importance

Contractors and corporations alike must be aware of whether a contract falls Outside IR35 or not. It also lets contractors arrange their budgets by dictating the amount of taxes they must pay. For businesses, it impacts whether they have to deduct income tax and national insurance contributions at source.

HM Revenue & Customs (HMRC) may impose fines on both the contractor and the company if a contract is mistakenly categorized as Outside IR35 when it actually belongs  Inside IR35 . Consequently, it's critical to comprehend the elements that decide whether a contract falls inside or outside IR35.

Furthermore, because it impacts your rights as an employee, knowing Outside IR35 is essential. Contractors who are outside IR35 are not entitled to the same benefits as employees, including paid time off, sick leave, and protection from wrongful termination.

The Outside IR35 Legislation

The Outside IR35 legislation is vast and complex. In 2000, the UK government adopted IR35, sometimes referred to as the "Intermediaries Legislation". It was designed to combat disguised employment, in which people would form limited businesses to perform as contractors for the sake of taxation, but in practice, they were carrying out the duties of employees.

The government changed the IR35 laws for contracts in the public sector in 2017, giving the end client more authority to determine an employee's employment status rather than the contractor. These modifications were extended to contracts with the private sector in April 2021.

The laws pertaining to Outside IR35 are always changing, so in order to maintain compliance, contractors and enterprises must stay informed of the most recent changes.

Determining the IR35 Status

Outside IR35 contracts are determined by a number of variables. These factors include whether the contractor is an integral element of the client's business, the contractor's financial risk, and the degree of control the client has over the contractor.

Control factors include things like where, when, and how the task is completed. The contract is more likely to be Inside IR35 if the client has a lot of control. Financial risk includes figuring out who bears the expense of fixing any errors in the work. Contracts that are Outside IR35 are more likely to occur when the contractor assumes the financial risk.

The 'part and parcel' consideration involves looking at whether the contractor is integrated into the client's organization. The contract is more likely to be Inside IR35 if the contractor is perceived as an employee of the company, for example, by having an email address associated with the company or being listed on the organizational chart.

Note: The UK Government provides an official CEST tool , that can help you in determining the status of a contractor. But keep in mind that it is not always reliable, and take legal consultation when in doubt. 

Impact of Being Outside IR35

For contractors, being labeled as Outside IR35 has major ramifications. They can pay a lower tax rate than on-payroll employees because they are considered self-employed for tax purposes. This can lead to higher take-home pay and more efficient tax planning.

However, being Outside IR35 also means contractors are not entitled to the same employment rights as employees, such as sick pay, holiday pay, and protection against unfair dismissal. Additionally, it might be difficult and time-consuming for them to handle their own tax matters.

For businesses, if a contract is Outside IR35, they are not required to deduct income tax and national insurance contributions at source, which can simplify their payroll processes. However, they must be confident in their IR35 status determination to avoid potential penalties from HMRC.

The Risks of Misclassifying as Outside IR35

Misclassifying a contract as Outside IR35 when it should be Inside IR35 can have serious consequences. Contractors could face a large tax bill, including backdated taxes, interest, and penalties. Businesses could also face penalties from HMRC and may be liable for the contractor's unpaid taxes.

It's essential for both contractors and businesses to take the time to accurately determine the IR35 status of each contract. This involves looking at a range of factors, including control, financial risk, and the extent to which the contractor is part and parcel of the organisation.

If there is any doubt about the IR35 status of a contract, it may be wise to seek professional advice.

How to Verify If You're Outside IR35

It's important to carefully evaluate the elements that define your IR35 status in order to make sure you're Outside IR35. A precise, documented contract that accurately captures the essence of the partnership is essential. That the contractor is not an employee and maintains control over their job should be made crystal clear in the contract.

Playing the part of a real company instead of an employee is also crucial. Having your own place of business, making equipment purchases, assuming financial risk, and aggressively marketing your offerings are all necessary for this.

Remember, it's not just what's written in the contract that matters. HMRC will look at the reality of the working relationship, so it's important that your practices reflect your contract.

Seeking Professional Help for Outside IR35

It could be helpful to get professional consultancy to determine if you're Outside IR35, given the complexity and risks involved. Experts in tax law can help you understand the intricacies of the laws and offer customized guidance depending on your unique situation.

Seeking expert guidance will give you the assurance that your contracts adhere to IR35 regulations and that you're handling your tax matters appropriately.

In conclusion, understanding the concept of Outside IR35 is crucial for both contractors and businesses. It determines how much tax a contractor has to pay and whether a business needs to deduct income tax and National Insurance contributions at source.

For contractors, being Outside IR35 can have financial advantages, but there are drawbacks as well, particularly if a contract is misclassified. Making sure that you're Outside IR35 grounds for a thorough analysis of the variables affecting your IR35 status and can call for expert counsel.

The keys to managing the intricacies of Outside IR35 in the always-changing world of tax regulations are being knowledgeable and getting professional help. We hope that this information has helped you better grasp this crucial area of tax law by demystifying the concept of Outside IR35.

Disclaimer: The information in this article does not constitute legal advice. Please seek legal advice if you need guidance regarding IR35. 

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  18. How to be IR35 compliant through a Statement of Work (SoW)

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  20. What does Outside IR35 Mean? Everything You Need to Know

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