IR35 - Step 1 in surviving IR35 - By: Antony

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.

Obviously, people have not liked this, especially freelancers who frequently take considerable risks in their business. Almost all freelancers are self employed, and so can easily be caught out by this new tax. A contract that is well phrased and clear will be fine, but the smallest mistake in word choice can be enough to sink you.

The easiest way to solve this problem, is just to have your contract checked over by an expert. A qualified IR35 reviewer will look over it for about 120. This is really a very small amount, considering the thousands of pounds that you stand to lose if you get it wrong. It's plain, good economic sense to get your contract reviewed.

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. If you fail, does your company bear the financial risk of it? [Yes = Good]

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

3. Is your company permitted to send alternative personnel? [Yes = Good]

4. Does your company bear the risk of bad debts? [Yes = Good]

5. Does your contract say "Contract for services" instead of "Service contract"? [Yes = Good]

6. Are you eligible for holiday or sick pay? [No = Good]

7. Are you an d your client related as if you were "master and servant"? [no = Good]

8. Do you have mutuality of obligations with your client? [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!

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