In simple terms, if you are a limited company contractor, you need to have your employment status assessed for tax purposes (IR35 status) and pay the relevant tax according to this status.
There are different rules in place dependent on if you are working for a small business in the private sector, a medium-large business in the private sector, or a public sector body – see more information on these rules below.
So how do you assess your status?
The legislation is based on historic case law which means that each significant case which goes before a judge can change how future cases are assessed. For the best part of the legislation's life however, there have been three key tests which remain vital in determining status today; the right to provide a substitute worker in order to fulfil the contract, control over how the contract is delivered, and the lack of existence of a mutuality of obligations between the parties.
Using these three tests plus numerous other factors to view the nature of the relationship as a whole, Qdos, HMRC, and the courts can determine the status of a contractor operating as a limited company. This is usually done by reviewing the written terms and conditions of the contract, as well as the working practices which is how the contractor and client operates in reality.
Understanding whether an individual falls under IR35 is complex and can have significant consequences should HMRC determine that tax is owed.