IR35 Rules Still Confusing for Contractors

IR35 can be quite confusing as it isn’t always simple working out whether you are classed as inside or outside the legislation.

In 2000 the government brought in IR35, otherwise known as Intermediaries Legislation, to prevent contractors from working as ‘disguised’ permanent employees.

It has been put in place to stop people trying to reduce their tax liability and National Insurance, 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?

It is HM Revenue and Customs that determines which way your practices fall, and if you are investigated they can check whether your contract truly reflects your working practices.

You cannot avoid or ‘bend’ the rules of IR35 – having a cleverly written contract will not be enough; you must be truthful and show that your working practices reflect your contract.

If your contract is caught by IR35, then HM Revenue and Customs will view you as having the same benefits as a permanent employer, which means that you will not be able to claim certain expenses and will have to pay full tax and National Insurance contributions.

Ultimately, if you fall outside of IR35, then you end up taking home more of your earnings.

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.

Falling inside, or being ‘caught’ out by IR35 is not all bad news despite not being able to claim as many expenses.

You are still entitled to claim back on 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 Unit

If you want to dispute HMRC’s IR35 decision, then you can do so by challenging your status with the IR35 unit.

This is not a quick process, as you would need to gain evidence in the form of the paperwork and any written contracts; this is because it is the contractor’s job to prove HMRC wrong.

IR35 Insurance

It is also possible that HM Revenue and Customs could challenge your contractor status with an IR35 tax investigation, which can sometimes end up quite costly on your behalf.

If you feel that this there is a chance this could happen or you just feel more comfortable knowing that you are covered, then you may want to consider IR35 insurance.

Some areas that you can be covered for include the costs of debating any challenges made by HMRC, as well as any areas which are being questioned. Examples include:

• The professional representing your case
• Income tax
• National Insurance
• Penalties
• PAYE
• VAT disputes.

IR35 Accountants

With employment status being such a complicated issue it can be useful to gain professional advice with the IR35 legislation.

When it comes to working out your status, going up against HMRC and disputing your IR35 status; or if you need further advice on whether to opt for IR35 insurance or not; having an IR35 accountant can be an extremely useful tool for a contractor.