Taking IR35 seriously and giving it proper consideration for every contract should be the starting point for all contractors. Ultimately, IR35 will fundamentally affect how you choose to operate. More importantly, if you want to consider setting up a limited company, you will be in a better position to establish what your tax and NIC liabilities are from the outset, which will enable you to plan and make appropriate business decisions.
Kate Cottrell, the director of Bauer & Cottrell (our IR35 reviewing partner), has provided even more reasons for contractors to consider a comprehensive IR35 contract review.
IR35 Contract review – what is the point?
Your reasons for not bothering with an IR35 contract review may include…
“The agency said my contract is IR35 compliant”, “All the contractors here say they are outside IR35”, “I did an online test about my contract that said I am outside IR35”, “No one gets investigated by HMRC for IR35, so there is no risk”, “I was outside IR35 for a different contract a while back”, “I don’t work in the public sector so I’m fine”, “I am claiming tax relief for travel and subsistence so I must be outside IR35”, “My accountant thought I was OK”…
As a Director of your own limited company, you are solely responsible for considering IR35 and ensuring that the returns you make to HMRC are correct.
Unless you can demonstrate you have taken reasonable care to establish your IR35 position by reviewing your contracts and working practices, you are at high risk of investigation from HMRC. They will look into your IR35 status and you may risk having to pay penalties for any mistakes (penalties start at 100% of the debt).
Please be aware of the following…
- A “compliant” or “IR35 friendly” agency contract counts for little when deciding IR35 status, as it is the reality of the day-to-day working practices that decides IR35.
- Just because other contractors say they are fine for IR35, each case is separate, distinct and decided on its own merits. Your circumstances are different to other contractors and you must not make any assumptions based on other people’s circumstances.
- HMRC have set up specialist IR35 investigation teams and are committed to undertake at least 250 new cases each year, in both the private and the public sector.
- You need to consider IR35 for each individual contract and extension. Being outside IR35 on one does not mean that a subsequent contract will be the same.
- HMRC can extend the period of their claim against you from 4 years to 6 years where they consider you or someone else, such as your accountant, was careless over IR35. A recent case increased the debt to HMRC by £60,000.
- From April 2016, being inside IR35 means no tax relief for travel and subsistence.
Still not convinced?
Avoiding the topic of IR35 is not the sensible way to operate as a contractor. If you work via an intermediary, such as an agency, they will be sending reports about you, your client and your income to HMRC (every quarter). If you work in the public sector, which means any organisation where public money is involved, you will have to provide an assurance to them that you are paying the right amount of tax and NIC.
If you do suffer an IR35 investigation:
- HMRC will always interview your end client. This will be to establish the day-to-day working practices and they will review the contract between the agency and the end client.
- You will need to convince HMRC that you either know all about IR35 and the relevant case law that supports it, or provide evidence of the advice you sought.
Gaining peace of mind is easy with our Essential IR35 Package!
To learn more about running your own company, please contact us for a free consultation. You will also receive a discount from Bauer and Cottrell – please get in contact and we will be able to refer you. Alternatively, please check out our Essential IR35 package, visit K&B Accountancy Group website, call us on 020 7078 0211 or send us an email here.
Bauer & Cottrell is staffed by ex-Contributions Agency/HMRC inspectors. They have vast experience of all aspects of HMRC Employer Compliance work and the management of HMRC compliance teams. They provide comprehensive IR35 contract review services and can represent you in the event of an HMRC IR35 investigation.
Kate was also on the Office of Tax Simplification (OTS) team tasked with the recent review of IR35. She sits on the IR35 Forum, advising HMRC and providing improvements to IR35.