IR35 Advice for Contractors
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Plain English IR35 Advice. Advice you'll be able to understand, which will make a change from most of the technical 'mumbo jumbo' you will read on the internet
What is IR35? IR35 was brought about by the government to ensure small companies especially contractors and freelancers, operate their own limited companies in a right and proper manner with the same level of risk, responsibility, liability and control that other directors of limited companies accept, when they manage their own businesses. You will most definitely be caught by IR35 and found to be inside if you have the same level of risk, responsibility, liability and control as a permanent member of staff.
What does IR35 mean for you? If your contract and working practices give the impression that you are inside or caught by IR35 legislation you will have to pay full tax and full National Insurance (instead of the usual salary and dividends from the profits of your company) and reduced expenses i.e. you'll earn less money. This is because HM Revenue and Customs believes that as you aren't taking the financial risks or have the same level of control as a director of your own limited company, you aren't entitled to the same corporate tax structure.
If you are inside/caught by IR35 is there any benefit in trading through my own limited company? If your contract and working practices look like you are inside IR35 you can still claim: traveling and accommodation expenses, 5% of your turnover, benefit from the VAT flat rate scheme (saving around £2,000 a year), and receive interest on the funds held within your own company. So yes, from a financial point of view it still could be worth it. Also, any other contract work you do could also be put through your existing company. Click here to download our free Guide to Expenses.
The only way to be sure whether your contract falls inside or outside IR35 is to have it reviewed by a specialist. SJD are one of only three firms in the UK who advise the Professional Contractors Group on IR35 and so are well qualified to give you the correct advice.
What kind of working practices and contractual conditions are HMRC looking for to see if you're inside or outside IR35? Below are a few hints, tips and pointers. Please be aware this is not a comprehensive list, IR35 regulations are extremely complex but the brief notes below should provide a rough indicator:
Control: Are you free to work under your own control i.e. not managed by the client?
Financial risk: Although profit share is common place in the employed world, it is without exception in owner managed companies. Also, employees rarely risk financial loss by being employed, whereas if you buy assets such as PC's, laptops, servers, printers, office equipment or a client fails to pay you as director of your company you will most definitely experience financial loss.
Substitution: In your contract do you have a clause about using somebody other than you to perform the task you're company has been contracted to do?
Provision of equipment: Will you be using your own equipment? Sometimes this is very difficult and allowances are made where security measures prohibit the use of say using your own laptop.
Right of dismissal: Do you have a fixed notice period. The Revenue will argue that this is like an employee, therefore there should be provision in your contract for immediate termination should the client choose to do so.
Employee benefits: Plainly speaking you can forget about receiving any holiday pay, sick pay, pension contributions, training courses, Christmas dinners or the annual staff summer outing.
Please remember, HMRC don't just look at the above - they review EVERYTHING in an effort to establish if you are really an employee or a director running, managing and controlling your own limited company. It doesn't matter if you are working for the same client for one month or twenty years. It's what you're doing and your level of risk, responsibility, liability and control.
One other thing you might want to consider is to join the Professional Contractor Group (PCG) who offer as standard, IR35 contract templates and support in the event of an investigation. SJD offers discounted membership to the PCG, simply click here to read more about PCG membership.
If you are at all worried by IR35 or have any further questions please call our IR35 specialists on 0500 152 500 / 01442 232700 or e-mail contracts@sjdaccountancy.com.
About SJD Accountancy
We provide proactive tax advice and accountancy services for contractors who choose to work through their own limited company - all backed up by our unique money-back service guarantee.
With a regional structure in place that covers the whole of the UK we are able to offer a truly 'local' low cost service wherever you happen to be based. We don't outsource and we don’t use agents, so you can have unlimited access to your SJD accountant by phone or email – or you can meet with them face-to-face in any city in the UK. Click here for an interactive map showing all our offices
SJD’s fixed monthly fee includes the following:
- Year end accounts
- Payroll bureau
- Dividend administration
- Dealing with Inland Revenue and Companies House
- Completion of VAT returns
- Completion of Annual Return
- Personal taxation
- Free bookkeeping software
And at £95 plus VAT we are also one of the lowest priced in the market.
We have a vast amount of experience in forming new limited companies and in dealing with newly-formed limited companies. We also have an online company formation facility and we are very happy to assist and guide new clients in all aspects of the administration and accounting requirements of their new companies.
SJD has an enviable reputation and have won more awards for customer service and accountancy excellence than any other firm in our market. Awards include: Accountancy Excellence from Accountancy Age, Best Contractor Accountant as voted by visitors to Contractor UK (UK's largest contractor website), Sunday Times Awards and various National and Chamber Business Awards. We are also a Quality Accountant as deemed by the UK's largest Contractor and Freelancer trade body the PCG plus we have more qualified staff than any other specialist firm with qualifications covering: ATII, ATT, ACCA, CA, ACA, FCCA, ACMA.
If you wish to appoint us as your accountants immediately, the quickest and easiest way to do so is by accessing our Client Agreement Form.
You may also find the following pages, guides and case studies useful:
Take home pay calculator - How much could you be taking home
First time Contracting or Freelancing? - A summary of the alternatives along with pros and cons
Step-by-step Guide to Contracting - Download a FREE copy of our guide
Limited or Umbrella? Can't decide? - We help you decide which is best for you
Take home pay case studies - Examples of contractors using a ltd co. & umbrella co.
Expenses Guide - Know exactly what you can claim
Umbrella company guide - Everything you ever wanted to know about umbrella company services