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IR35 - Step 1 in surviving IR35

IR35, more properly known as the Intermediaries Legislation, was introduced in early 2000. It was designed to prevent the avoidance of tax and national insurance contributions (NIC) via the use of intermediary companies, by taxing such companies at a rate similar to the tax paid by employed workers.

This law has become rather disliked, particularly by freelancers, who typically take significant risks in their business. If they have a well written conmtract, then it supports them, and highlights their self employed position. However, if it is poorly written, thenit can undermine them and even fall foul of the dreaded IR35.

The simplest and safest solution is to have all contracts reviewed by an IR35 expert before signing. There are many review providers and the average price is around 120. Given that the review could result in a tax saving of tens of thousands of pounds in an IR35 enquiry, it is a false economy to put off getting a review.

Here are some of the things that IR35 experts check when they review contracts for IR35 status:

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. Does your company bear the risk of bad debts? [Yes = Good]

5. Is your contract a "Contract for services" rather then a "Service contract"? [Yes = Good]

6. Are you eligible for holiday or sick pay? [No = Good]

7. Are you an d your client related as if you were "master and servant"? [no = Good]

8. Do you and your client have mutuality of obligations? [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, 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.

Article Source: http://www.topicinfo.com

This page was provided by Home Loans Direct and Small Business & IR35 Contractor Accountants Antony J. Holdsworth & Co.

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