Surviving IR35 - Step 1
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.
Before you send it off for review, I'd suggest you check some things yourself, just to see if there's anything that you obviously need to change.
1. If you fail, does your company bear the financial risk of it? [Yes = Good]
2. Will your sound management be profitable for your company, in performing the contract? [Yes = Good]
3. Does your company have the right 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. Is the relationship between you and your client one of "master and servant"? [No = Good]
8. Do you have mutuality of obligations with your client? [No = Good]
If you are a freelancer, working from the UK, and everythign listed above checks out for you, then you are likely to be fine in the event of an investigation. However, be careful. It's not just what your contract says that matters, but also how it is written. IR35 investigators look very closely at the precise wording of contracts, so you need to be sure you use exactly the right phrase.
So, step one in surviving IR35 is to get all contracts reviewed by an IR35 expert before signing. If the expert advises that the contract or part of it should be changed, get it changed before signing.
This article has been brought to you by the companies Home Loans Direct, and the Small Business & IR35 Contractor Accountants Antony J. Holdsworth & Co.
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