Guest Post by The Accountancy Partnership
IR35 has been a thorn in the side of many independent contractors since its inception in 1999. By attempting to stop people from impersonating independent contractors for tax benefits, IR35 had fair enough intentions but it has provided many people who work on a contract-to-contract basis genuine problems when it comes to paying their taxes.
Chancellor George Osborne mentioned IR35 in his recent autumn statement and confirmed that it was here to stay albeit with a few alterations that would make it easier to understand; though this may come as scant conciliation to a number of people involved in contracting that wished to see the legislation abolished. So what is it about IR35 that causes so much hassle?
The above flowchart illustrates the basic principles that should find a contractor either “inside” IR35 (meaning you pay PAYE and NI like a regular employee) or “outside” (meaning you pay corporation tax like a limited company). They seem relatively easy to follow but when a contractor enters a contract that that violates one of the guidelines, the contract provides some sort of financial safety net for example, then they are at risk of HMRC deeming them to an employee as opposed to genuinely independent.
An IR35 investigation by HMRC can have serious financial repercussions for anyone found guilty of falsely claiming to be an independent contractor. Anywhere between 30-100% of the tax that would have been due as an employee can be reclaimed depending on whether HMRC deem the false employment status to have been careless, negligent or deliberate. IR35 investigations have been largely successful for HMRC so it is imperative that contractors are completely sure about the IR35 implications of any contract they enter into.
Contract accountants and limited company experts can look over any contracts that have the potential to cause problems with regards to IR35 and offer advice on getting the contract changed. That said, it is still important that independent contractors have a good idea of what a contract should/shouldn’t contain to stay outside IR35. So remember, you should:
- have no immediate boss
- be providing your own tools and equipment
- be paid a set amount for a specific job
- receive no employee benefits such as pension contributions or sick pay
- be financially responsible for the timely and satisfactory completion of your work
If any of these factors do not apply to your contract then get it checked or changed.
Article and flowchart on behalf of The Accountancy Partnership.