Following the recent economic uncertainty the contracting sector appears to have bounced back and is enjoying a period of buoyancy. However with more individuals choosing the freedom and flexibility that comes with contracting, HMRC will be watching carefully for contracts falling foul of IR35.
At a4c we have produced a guide to IR35 and have teamed up with Qdos Consulting who offer IR35 protection and insurance policies but here are a few quick tips to help you ensure you are IR35 compliant for sleep-full nights!
what is IR35?
The Intermediaries Legislation (IR35) is intended to counter tax avoidance by the use of so-called personal service companies (PSC), it aims to prevent workers from setting up limited companies through which they could work as an employee whilst saving on tax. In simple terms HMRC look to see if there is a hypothetical contract in place between the client and the worker enabling disguised employment.
what do HMRC look at?
HMRC will look at both the written contract between your limited company and the agency or end client along with your actual working practices, i.e. the way the work is performed in reality. It is therefore crucial that you have a sound contract in place and that your actual working arrangements mirror the written terms.
what is the business entity test?
HMRC introduced this in May 2012 to help contractors self-assess whether IR35 will apply to them using a simple scoring system. Due to the nature of contracting most will fall in the medium or high risk category when taking the test, and will therefore need to take action to safeguard their business.
how to be compliant?
There are a number of key areas that must be considered and incorporated if you are to be considered compliant. The most important, when determining IR35 status are:
- Personal service / right of substitution
- Control and
- Mutuality of obligation
These are explained in further detail in our free IR35 Guide. Other things to look out for in your contract are employment related terms such as overtime, holiday pay and sick pay.
For extra peace of mind…There are three products offered by Qdos Consulting especially with IR35 in mind:
- IR35 Contract Assessment – £40
- Full IR35 Contract Review – £99
- IR35 Defence Pack – £120
it’s not all bad!
HMRC do not say that clients cannot engage contractors ‘off payroll’ and it is not illegal to operate under a contract which is caught by IR35. They accept that there is a valid need across the public and private sector for the army of contractors with their enhanced skills and experience. HMRC are simply concerned that the PSC’s are legitimate and organised formally (and that’s where we come in!).
At a4c we believe everyone should pay the tax they owe but nobody should pay a penny more than they need to. For help managing your tax affairs efficiently give us a call today for a friendly no obligation chat – 01737 652 852.