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 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.

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. Will your company be financially responsible for failure? [Yes = Good]

2. Will your sound management be profitable for your company, in performing the contract? [Yes = Good]

3. Is your contract specific to you, or does your company have the right to send alternative personnel? [Yes = Good]

4. Will the risk of bad debts be born by your company? [Yes = Good]

5. Does your contract say "Contract for services" instead of "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 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.

Thus, the first thing that you need to do is to have your contract reviewed by a professional IR35 contract reviewer. An expert should be able to give you some good advice about any parts of the contract that need to be changed. If you do need to change something, then make sure you get it changed before you sign!

This page was brought to you by the companies Home Loans Direct and Small Business & IR35 Contractor Accountants Antony J. Holdsworth & Co.

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Surviving IR35 - Step 1
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