IR35 Advice for Contractors

IR35 is legislation brought in by the Government in April 2000, to counter what HMRC class as a disguised employment.

For example 

An example of disguised employment would be if a permanent employee were to leave their company on a Friday afternoon then return to work on the Monday, at the same company, doing the same job role, but as a contractor rather than a permanent employee.

The aim of the IR35 legislation is to stop people leaving full time employment and then returning to the same job immediately as a contractor working through their own Limited company, in order to reduce their tax liability and their NI payments.

IR35, what does it mean for you?

If your contract has the same level of risk, responsibility, liability and control as a permanent employee,then you would be classed as inside or caught by IR35 legislation. This means 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. Download our free Guide to Expenses.

The only way to be sure whether your contract falls inside or outside IR35 is to have it review by a specialist. SJD are one of only three firms in the UK who advise the The association of Independent Professionals and the Self Employed 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 your 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  The Association of Independent Professionals and the Self Employed (IPSE) who offer as standard, IR35 contract templates and support in the event of an investigation. SJD offers discounted membership to the IPSE, simply visit the IPSE website, to read more about IPSE membership.

You may also find our pages on, What is IR35IR35 rules IR35 Business Entity Tests,  IR35 Calculator and Inside IR35 - A Limited Company Guide helpful.

If you are at all worried by IR35 or have any further questions please call our IR35 specialists on Freephone 0500 152500 / 01442 275789 or email nikki.hanlon@sjdaccountancy.com. Alternatively, complete the below and we'll get back to you as soon as possible.

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SJD Accountancy

SJD Accountancy are the UK's largest specialist provider of fixed fee, Limited company accountancy services to contractors; we've been acting for contractors across the UK since 1992 and have more than 14,000 clients.

We are the only national specialist firm of contractor accountants with offices nationwide. SJD Accountancy also have more qualified staff than any other firm in our market with qualifications from the following major tax and accountancy bodies - ATII, ATT, AAT, ACCA, CA, ACA, FCCA, ACMA.

  • Unlimited face to face meetings. This is another unique service, only SJD Accountancy offers unlimited face to face meetings across the UK - tax is complicated and sometimes only a meeting will do.
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If you have any questions about contracting or would like any further advice please call our new client services helpdesk on Freephone 0500 152500 / 01442 275789 or email: lisa.wood@sjdaccountancy.com.

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*If you would like us to complete your company year end accounts we simply ask that you have been a client of SJD for one year or have made 12 monthly payments. All accountants are part or fully qualified.