We’ve written about IR35 an awful lot on this blog, as it’s a tricky piece of tax legislation every contractor should be aware of. In our introduction to IR35 we covered the very basics, but we didn’t delve too deeply into how you could avoid its tentacles.
With that in mind, lets take a closer look at how you can limit its impact. First things first though, let’s have a quick refresh of the legislation…
What is IR35 and why does it exist?
IR35 was designed to identify employees that masquerade as limited companies, its aim to claw back tax lost under the veil of ‘disguised employment’.
As such, you don’t ever want to appear like an in-house employee to HMRC – so what steps can you take to protect yourself when you take on a contract?
Consider your position
The taxman will be looking at your day-to-day practices should they launch an IR35 investigation, so if what you’ve read so far concerns you it’s wise to consider your position. Here’s a run-through of the things to think on when you take a job on…
Are you just replacing someone?
IR35 can catch you if you’re just replacing someone who was once an employee, as the taxman can argue your limited company is just disguising you and giving you an undeserved tax advantage.
Are you your own boss, or is the client in control?
In the eyes of the law, a limited company ought to have control over their working conduct. In contrast, an employee ought to be subject to their employer’s direction.
Specific things to look out for in any contract are:
- Defined start and finish times
- Designated days you should work
- Allocated lunch time breaks
- Any direct clauses which dictate that the client has supervision and control over you
Can someone else cover you?
Another thing to consider is whether your contract allows you to take on someone else, or if it’ll allow you to use a substitute to conduct your services. If this isn’t the case and the client is just after you personally (rather than your company) then it can be trickier to argue against IR35.
Are you ‘part and parcel’ of the client’s company?
Do members of the client’s staff report into you? Do you appear upon their telephone lists? If so then this doesn’t bode well for your IR35 liability.
There needs to be a clear contrast between your services and the client’s business – you don’t want to be too involved in their operations.
Can you take on other jobs?
As a limited company you ought to have flexibility to take on other contracts, and you shouldn’t be bound by any client to work exclusively for them. Ensure that any contract provides some flexibility, to help you avoid the claws of IR35.
Are you invoicing your client?
Contractors should receive payment through the invoicing process, and shouldn’t be put on employee payroll. If you’re not then invoicing then it’s clear your not acting like a limited company.
These are the sorts of things HMRC will consider when it comes to IR35, so it’s imperative to take steps to protect yourself – your contracts a key asset. Before you sign any dotted line make sure your client is clear of your relationship, and do everything in your power to make yourself as IR35-proof as you can be. We can help on this front – check out our packages for more details – or get in touch on 0161 669 4221 or via info@biaaccountancy,com
