Top Tips on Finding out If Your Contract is Outside IR35
IR35 can seem like a complex topic, but with the right advice from a good contractor accountant you needn’t worry about the legislation.
So, what is IR35? The government brought the legislation in to put a stop to ‘disguised employment’, to prevent people from trying to reduce their tax liability and NI, by leaving full time employment and then returning to the same job immediately as a contractor working through their own limited company.
Inside or Outside?
If you fall ‘outside’ IR35 then you end up taking home more of your earnings, this is because falling ‘inside’ means that HM Revenue and Customs will deem you as having the same benefits as a permanent employer. This means that you can’t claim back certain expenses and will have to pay full tax and NI contributions.
In order to fall outside, you will need to show that you are working with the same level of responsibility, control and liability as other contractors.
Some examples of being outside of the legislation are if you:
• Risk you own money through your business
• Are required to handle any loses, as well as profits
• Can bring in additional workers
• Have complete control and final say over how you work
• Use your own equipment for work – although this can be a grey area as some companies insist you use their office equipment.
If these key points do not reflect your own practices, then it is likely you’re your contract is caught by IR35, however, this isn’t all bad news as there are still some benefits.
You are still entitled to claim for some expenses, such as travelling and accommodation, 5% of your turnover and you can benefit from the Flat Rate VAT Scheme, which will save you money throughout the year and earn interest on the funds held in your own company account.
IR35 Business entity Tests
In May 2012, HMRC introduced voluntary business entity tests to reduce the confusion surrounding IR35 and to help contractors to be aware that HMRC could question whether their contract and day-to-day practices fall inside or outside IR35.
The twelve question tests are completely voluntary and are divided into sections including, business premises, PII, assistance, advertising, repair at own expense and billing.
Taking the tests can really help if you find yourself unsure of where you stand within the legislation.
With employment status being such a complex issue, it can be extremely useful to gain professional advice with regards to the IR35 legislation.
Whether you need help working out whether you fall outside or inside IR35, disputing your status against HMRC or discussing the pros and cons of IR35 insurance, it’s important to take on a trustworthy accountant who specialises in your specific working practices.
About the Author: This article was written by Senior Product Manager, Luisa Lawrence on behalf of SJD Accountancy. For more information about the UK’s largest Contractor Accountants, please visit the site today.