IR35 is a term used to describe two sets of tax legislation that are designed to combat tax avoidance by workers, and the firms hiring them, who are supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used.
Despite being heavily criticised and delayed due to COVID the first piece of legislation came into force in April 2000 and is properly known as the Intermediaries Legislation. IR35 takes its name from the original press release published by the then Inland Revenue (now HMRC) announcing its creation.
IR35 was introduced to tackle the problem of “deemed employment”. This is where organization’s engage workers on a self-employed basis rather than on an employment contract, so they become deemed, or “disguised”, employees.
If you are a genuine contractor, freelancer, interim or consultant who is in business on your own account, you should have nothing to fear from IR35.
For firms that hire contractors, where the new Off-Payroll tax needs to be considered, they should also not fear the new legislation, provided they take the correct steps when hiring and engaging their contractors.
One of the considerations HMRC will look into when investigating whether a contractor is a genuine contractor or a deemed employee is the provision of equipment.
Provision of Equipment
Provision of Equipment means the contractor buying as much of the equipment that they need to do their work as they possibly can. They should use as little of the company’s equipment as they can – even including the use of software as typically the self-employed will provide their own equipment [Ready Mixed Concrete (South East) v The Ministry of Pensions and National Insurance (1968)].
If you are reading this blog I guess you are either a self-employed contractor or a company that use contractors. I’m sure you will have already considered the long term implications of IR35 but I would encourage you to consider software ownership as part of your review.
If you are or use self-employed contractors they should only be using their own software unless due to security reasons that is not possible. If that is the case it should be documented and requested in a written contract between the company and its contractor documenting the reasons why the contractor must use the companies software. You should seek professional advice before taking this step.
Most software vendors register licenses by company legal entity or VAT registration including Autodesk licenses. So technically software licenses used by off-payroll contractors should only be registered in the self-employed company name and not the company using contractors.
IR35 is a minefield so I would encourage you to seek professional tax advice to understand how it affects your business.
Man and Machine can advise you on software license ownership and will always extend the same account management and advice to any self-employed contractors who need to register software assets themselves.
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