The IR35 rule changes coming into force across the private sector on 6 April will affect a wide variety of industries and services, including self-employed mortgage brokers.

Chancellor Rishi Sunak has announced, under some pressure, that the new rules will only be enforced lightly for the first year. But the changes are still coming, and contractors must prepare now.

IR35 was introduced nearly 20 years ago to root out ‘disguised employees’, where a contractor acts as an employee in all but name through an intermediary (usually a personal service company), creating tax advantages. From April, businesses will be responsible for determining whether contractors who provide personal services to them as end users fall ‘inside’ or ‘outside’ of IR35. They will have to ensure that the PAYE tax and national insurance contributions are deducted ‘up front’, a significant change to remuneration.

If you are a self-employed mortgage broker, you should be aware of how you are assessed for tax purposes, and whether the rules will apply to you. In general, the following factors determine whether someone is an independent contractor or an employee.

Remuneration – are you paid a fixed fee, commission, or a mixture of both, to reflect your time and skill and so can the ‘rate per hour’ vary accordingly? Or, are you paid just a rate per hour with little ability to increase reward that recognises your skill and effort? If the latter, you are more likely to be classed as an employee.

Assignments – as a contractor do you undertake multiple assignments for multiple clients? If not, how long have they worked for your current client and are you ‘on the books’. If you are on the books, you are more likely to fall under IR35.

The nature of duties undertaken – is the job one you would expect to be done by an employee? Does the end user have employees performing similar roles? If so, your PSC may fall under IR35 rules.

Financial risk – are you in business on your own account – do you bear financial risk in the performance of the duties? Bearing financial risk means you are less likely to fall under the scope of IR35.

Entitlement to benefits – entitlement to employee benefits such as pension contributions, paid holidays and sick pay obviously indicate you are being treated as an employee.

Supervision, direction and control – how much control does the end user have over the manner in which you carry out your role? If the level of control is considerable this means the provider is more like an employee.

Substitution – do you have the right to send a substitute carry out the role? Numerous court and tribunal cases have established that where a true right of substitution exists the arrangement is unlikely to be one of employment.

Whether you fall within IR35 is important not only from an earnings perspective but also for cash flow. Suffering PAYE deductions upfront under IR35 will impact initial take home pay and you may be eligible for fewer expenses.

However, IR35 does potentially provide some additional levels of certainty, routine and perhaps levelling up, so can also be seen as an opportunity and not just additional complexity.

Nigel Morris, tax director, MHA MacIntyre Hudson