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1. What is IR35?
. It is all about taxing so called “disguised” employment i.e. acting like an employee but getting the tax advantages of working for your own limited company
. The law is so badly worded that case law and legal precedent determines IR35 cases
2. How do you avoid IR35?
. Have a well written contract although not being caught by IR35 rules isn’t just a paper exercise
. The contractor’s behaviour must match the contract i.e. as a genuine provider of business-to-business services
. Most contractors don’t help themselves by behaving like employees
3. The Big Three factors in an IR35 contract
. Your company has a right of substitution over who it provides
. The client does not control or closely supervise the contractor
. No mutuality of obligations exists between contractor and end client e.g. either you or the company can terminate the contract with no notice or limited notice, ideally less than 30 days.
. The contractor should be able to work for other parties during any contract
4. Lesser factors in an IR35 contract
.Contractor should remedy deficiencies at their own expense
.Contractor should be free to work the hours that they want
.Use their own equipment
.No employee benefits such as holiday pay, sick pay, pension rights
.Not get invited to employee events e.g. Christmas parties
.Not becoming “part and parcel” of the organisation e.g. having own specific desk, office
.Being identified differently to an employee e.g. having a pass with “Contractor” plastered on it rather than employee and being labelled as a contractor in company internal directories
(a) Should advertise e.g. have a website to advertise their services and have an advertising budget
(b) Become a member of IPSE (the association of Independent professionals and Self Employed, formerly the Professional Contractors Group)
(c) Not having a continual stream of renewals over a number of years
(d) Not being part of a client’s appraisal process
(e) Having business insurances e.g. professional indemnity insurance (most agencies ask for this anyway)
(f) Acting like you are a genuine provider of business-to-business services
.You cannot trust agencies to have “IR35” proof contracts. We’ve seem some appalling howlers from major agencies.
.Make sure that the contract is signed by the company and not you
6. IR35 Insurance
.You can buy up to £100K of tax liability insurance against being caught by IR35 for less than £1,000 (ask us for details)
.Most accountancy firms are not IR35 specialists
.You can pay anywhere between £60 and £150 pcm for specialist contractor accountancy services.
.We think we’re the best value for money!
8. The HMRC enforcement team
.There are approximately 250 investigations a year
.There is a team of 40 HMRC inspectors working to enforce IR35
.At last count, HMRC was raining just over £1 million per year on “lost” tax due to IR35
.HMRC often lose IR35 cases
.HMRC typically pick on weaker cases