As a contractor, you’ve probably come across
the term IR35 before, right? Basically, it’s a tax law that targets ‘disguised
employment’. And, so we’re on the same page, a disguised employee is someone who
falsely positions themselves as a limited company contractor, in order to pay less tax.
Now, HMRC see this as tax avoidance, and they introduced IR35 to help decide whether contractors
are working through their limited companies correctly. Shared obligation, control over projects and the right
to provide a substitute, are just a few of the things that’re used to determine someone’s
IR35 status. It works like this.
Meet Charlotte. She’s a contractor who designs websites for a client via her Personal Service
Company, ‘Charlotte’s Webs Ltd’. Her client’s pretty picky, and her contract
requires her to follow set processes, complete company training and provide the service
personally. She’s given tasks to fill her time while waiting for feedback and spends weekdays in the office – even though it means missing
out on her morning gym classes. Zumba aside though, Charlotte’s happy. The
money’s good, her client has to provide regular work, and she even gets a company
issued laptop to complete her assignments. Only problem is, this all means she’s likely
to be deemed inside IR35 by HMRC. Bad news for Charlotte; but there are a few
things you can do to avoid being ‘caught’ by the same rules.
• [ONE/1] Firstly, review your contract Don’t sign anything without receiving
professional, independent advice. Next, operate like a business,
and keep records of the tasks and events which show how your role differs from that of your client’s full-time employees. Thirdly, market your business
properly. Choose a snazzy name, create a fancy logo, and sell your services via a company
website. And, most importantly, make sure
you understand your sector. It’s crucial to be aware of the rules, especially if they
mean that IR35 will apply automatically. With IR35, it’s really important to be honest
with yourself, your client, and HMRC, when it comes to declaring your status. If you’re
caught out, investigations can be launched into your practices, and you could be left
with a hefty tax bill. To make sure you’re prepared, or to get
more information on the rules surrounding IR35, talk to us, today.