No matter if you're new to freelancing or you're a contracting veteran, technical lingo can be baffling when signing contracts, filing tax returns or shopping for business insurances.

We're here to help - read on to bust some common contracting jargon.

Jargon Buster

Agency

Recruitment company or employment business that sits between the contractor’s limited company or partnership and the end client. The ‘middle-man’ of the contractual arrangements.

Case Law

Legal decisions made by the courts or tribunals that help form the basis of many of the tests of employment status. Ready Mixed Concrete (South East) v Minister of Pensions and National Insurance [1968] is the bedrock of virtually all IR35 disputes.

Confirmation of Arrangements

A non-legally binding statement that confirms the working practices of a contract and which is agreed by both the contractor and end client. A useful document for a contractor to demonstrate to HMRC their IR35 position, although not conclusive in itself.

Contractor

The individual worker who performs the services for the client.

Control (right of)

Is concerned with the right to control what the worker has to do, where it has to be done, when it has to be done and how it is to be done. It does not matter that an end client does not exercise such control over the worker but rather that the right to do so exists to a sufficient degree to create a master-servant relationship. A lack of such control is a strong pointer towards self-employment.

Deemed Payment

The amount that the PSC is treated as paying to the worker under the IR35 legislation and which is chargeable to income tax and NIC as employment income.

Disguised employee

A contractor working as if an employee of the end client but through their own company or partnership, and therefore caught by the IR35 legislation.

Dividends

A payment made out of a company’s profits for a period in respect of a share in a company. Unlike a payment of salary, dividends do not attract NIC.

Employee

A person who works part-time or full-time under a contract of employment and has recognised rights.

End client/end-user

The organisation for whom the worker provides their services.

Fee-Payer

Relevant to the IR35 reforms in the public sector known as the ‘off-payroll’ rules, this is the entity, typically the agency, responsible for paying the contractor and deducting PAYE tax and NIC where necessary.

HMRC

Her Majesty’s Revenue and Customs. Responsible for administration of the UK tax system and collecting tax.

Intermediary

The company or partnership (including a limited liability partnership) through which the worker provides their services.

Inside of IR35

Relationship between the contractor and client is considered to be one of ‘disguised employment’ and therefore PAYE tax and NIC must be deducted from the contractor’s income and paid over to HMRC.

IR35/Intermediaries Legislation

Anti-avoidance tax legislation introduced in 2000 that targets workers supplying their services to a client via their own personal service company (PSC) or partnership as a contractor, but who would be considered an employee of the client were it not for the use of the company/partnership.

Key status tests

Three major tests of employment status handed down through decades of legal decisions. These are personal service (including the right of substitution), control (right of) and mutuality of obligation (MOO) and are of great significance in determining whether or not IR35 applies.

Limited Company

A private company which has a share capital and whose members are liable for the company’s debts up to an amount they have agreed to subscribe for shares.

Minor Status Tests

Comparatively less important tests, but still indicators as to IR35 status. These include such factors as ‘part and parcel’ of the client organisation, opportunity to profit etc. 

Mutuality of Obligation (MOO)

A key feature of an employment relationship wherein an employer is obliged to offer continuing work to the employee and pay that employee. Equally, the employee is obliged to accept the work from the employer and make themselves available for such work. An absence of such loyalty between the two parties is a strong pointer towards self-employment, although this test is regularly ignored by HMRC.  

Outside of IR35

Relationship between the contractor and the client is considered to be one of genuine self-employment.

PAYE

Pay As You Earn, tax on the employment earnings of employees and directors collected by employers.

Personal Services Company (PSC)

A limited company that typically has a sole director (the contractor) who is the main fee earner and who owns some or all of the shares.

Relevant engagement

An engagement to which the IR35 legislation applies.

Right of substitution

A contractor’s ability to send a replacement worker in their place to carry out the work. A genuine right of substitution, i.e. where the contractor recruits and pays the alternate worker, is a strong pointer towards self-employment.

Sole Trader

A self-employed individual who, as the exclusive owner of a business, is entitled to all the profits but is also liable for all its debts. IR35 does not apply to sole traders.

Working Practices

The manner in which a contractor carries out their day-to-day work during a contract. Crucial in determining IR35 status.

Additional advice for contractors

Should you need any further help with any of the above, please feel free to contact us on 01163 800 400 or email us.

Alternatively, take a look around our Knowledge Hub for more contractor guides, industry news and IR35 advice.

Leave a Reply

Sorry, you must be logged in to post a comment.