IR35 - Step 1 in surviving IR35
by Antony
Originally called the Intermediaries Legislation, but better known as IR35, this law was introduced towards the start of 2000. The purpose of it is to prevent tax evasion through the use of personal service companies. This is done, not by identifying those doing so, but simply by taxing such companies (which do have a legitimate purpose) the same as individuals are taxed.
This has been an unpopular piece of legislation, especially since most UK freelancers are genuinely self employed consultants who are taking entrepreneurial risk in providing their services. A well worded contract can help them underline their self employed status. Likewise, a poorly worded contract can undermine that status at a stroke.
The easiest way to solve this problem, is just to have your contract checked over by an expert. A qualified IR35 reviewer will look over it for about 120. This is really a very small amount, considering the thousands of pounds that you stand to lose if you get it wrong. It's plain, good economic sense to get your contract reviewed.
So let's go over some of the key factors that you need to consider. Here are a few questions that may help you determine if your contract is likely to pass.
1. Does your company bear the financial risks of failure? [Yes = Good]
2. Will your sound management be profitable for your company, in performing the contract? [Yes = Good]
3. Is your company permitted to send alternative personnel? [Yes = Good]
4. Is your company responsible for any bad debts? [Yes = Good]
5. Is your contract a "Contract for services" rather then a "Service contract"? [Yes = Good]
6. Will you receive sick or holiday pay? [no = Good]
7. Are you an d your client related as if you were "master and servant"? [no = Good]
8. Do you have mutuality of obligations with your client? [No = Good]
For a UK freelancer, if all of the above seems to be in order, then you have a good chance of being unaffected by an IR35 investigation. However, you need to consider not only what is written in your contract, but also how it is written. Even if all of the contents of your contract are in order, a badly phrased paragraph could still easily sink you.
So, the first step in making sure you are completely in the clear with regards to IR35 is to contact an expert reviewer. Get them to take a look at your contract, and sound out anything that might trip you up. Just be sure you get thsi done before you put pen to paper and actually sign it.
This page was provided by the companies Home Loans Direct, and the Small Business & IR35 Contractor Accountants Antony J. Holdsworth & Co. You are welcome to reprint this article - but get your own unique content version here.
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