Sole Trader status as consultant

[dl8860]

My wife works as a free-lance consultant in the media/marketing industry. She set up as a sole trader as she was advised against LTD route for numerous reasons, and sole trader was easy and simple to set up, and has worked well.

She's now been asked to fill in an IR35 form by one of her clients, and my first reaction is she doesn't need to as IR35 only covers entities (i.e. LTDs) not sole traders. I'm still happy in that assertion.

However in finding a few confirmatory sources, I came across these, with some interesting quotes

Does IR35 apply to sole traders? - Contract Eye

“The specific legislation only applies to limited companies (and partnerships). However, status is also an issue for sole traders. The main difference is that the end client would foot the bill if they were deemed to be disguised employees, rather than the contractor himself.”

Are sole traders affected by IR35?

There are many ways in which a sole trader can be hired by a client. The client organisation will be responsible for paying the additional taxes, interest and possibly penalties should a sole trader be considered to be an employee. Whilst the sole trader does not carry any liability, they would of course suffer a deduction on their future earnings, as the likelihood is that they would have to be placed onto the payroll of the end client.

In what case would she need to be placed on the payroll? And what additional taxes would be due in this case? She currently pays tax and NI via self-assessment, with nothing deducted at source, as she is very much a self-employed consultant and not an employee.

[northernladuk]

What does fill an IR35 form in mean? Her role is being assessed as part of the new rules and she will be given a Status Determination Statement?

[dl8860]

What does fill an IR35 form in mean? Her role is being assessed as part of the new rules and she will be given a Status Determination Statement?

She's literally been handed a questionnaire and asked to fill it out, has questions like "Can the contractor choose where work is undertaken", "Are there any specific deliverables mentioned in the contract" etc.

I've not heard of an SDS but just researched it now. I had no idea there were going to be any implications from all the IR35 changes happening for sole traders. I ran an LTD myself for a short duration a few years ago so have some background knowledge on it all, but I thought that because as a sole trader she pays tax on a personal basis (i.e. just income tax and NI, no corp tax, dividends etc.) that it wouldn't be affected.

If she gets put on payroll then I guess the client will need to pay NI and tax at source? I don't see why they'd want to do that though.

This article mentions the Income Tax (Earnings and Pensions) Act 2003, but is that only when using an agency?

[Paralytic]

She's now been asked to fill in an IR35 form by one of her clients,

She's literally been handed a questionnaire and asked to fill it out

Which is it? An IR35 form, or a questionnaire?

If an IR35 form, specifically what is it? CEST, an employer specific one. Does it actually mention IR35 or are you making that jump?

[jamesbrown]

Unless there's an intermediary, the intermediaries legislation doesn't apply. Examples of intermediaries include: companies, partnerships, unincorporated associations and individuals. Even when there is an intermediary, there are minimum conditions of liability. So, no, if there's a direct contract between the client and a sole trader (person=business), the intermediaries legislation doesn't apply. However, the client may be on the hook for employment taxes if it turns out the consultant looks like an employee (same tests in case law), but that is unrelated to IR35.

[TheCyclingProgrammer]

You're right, IR35 does not apply to sole traders. It doesn't need to apply to sole traders as there is no intermediary.

However, if somebody hires somebody else on a self-employed basis when really that person acts like and is treated like an employee, then HMRC will seek to have that person taxed as if they were an employee. The liability in this case rests with the client or "employer". This is nothing new and is one of the reasons why most agencies won't take on contractors on a self-employed basis and why we all use Ltd companies.

This is similar in many ways to IR35 post-April except without the intermediary.

[dl8860]

Which is it? An IR35 form, or a questionnaire?

If an IR35 form, specifically what is it? CEST, an employer specific one. Does it actually mention IR35 or are you making that jump?

Her main contact at the client company called it an IR35 questionnaire but it doesn't mention IR35 on it. I doubt that contact will know much about the situation. Basically wanting to know if there's any actual risk here of some sort of status determination making anything worse.

[dl8860]

Unless there's an intermediary, the intermediaries legislation doesn't apply. Examples of intermediaries include: companies, partnerships, unincorporated associations and individuals. Even when there is an intermediary, there are minimum conditions of liability. So, no, if there's a direct contract between the client and a sole trader (person=business), the intermediaries legislation doesn't apply. However, the client may be on the hook for employment taxes if it turns out the consultant looks like an employee (same tests in case law), but that is unrelated to IR35.

Thanks for your answer. What are the employment taxes you mean here? Is that employer's NI?

So if my wife's status as self-employed fails the non-IR35 IR35 criteria (i.e. is deemed an employee) then she'd be forced by HMRC to go on payroll? If that ends up being the case then the whole system is an utter joke.

[TheCyclingProgrammer]

The reason it’s like this is to stop employers from treating people who would otherwise be employees as self employed to avoid paying employers NIC and providing other employment rights.

It’s not intended to stop genuine self employed people working for clients, it’s to stop companies from exploiting workers.

[dl8860]

The reason it’s like this is to stop employers from treating people who would otherwise be employees as self employed to avoid paying employers NIC and providing other employment rights.

It’s not intended to stop genuine self employed people working for clients, it’s to stop companies from exploiting workers.

That's a helpful way to look at it, thanks. Just a little worried that the client is going to end up seeing this as a risk and possibly consider terminating or limiting the arrangement in some way.