We have put together an IR35 Survival Kit, which contains all of the important information you need to make informed choices and to strengthen your case. Written by experts with over a decade of experience in handling enquiries, the Survival Kit contains various helpful sections, including:
HMRC introduced the 'Intermediaries Legislation' that became known as IR35 in 2000 after it was announced in the 1999 Budget.
The legislation was introduced to combat 'disguised employees'. This refers to an individual who would be treated as an employee were it not for the fact that they provide their services via their own personal service company.
Contractors working via limited companies are not liable to pay NICs on income taken as dividends, resulting in far less tax to the Treasury. As a result of this, IR35 exists to ensure that those working in this manner pay the tax they should.
Being 'caught' by IR35 can have serious financial consequences. If the Revenue investigate a contract and decide that it is inside IR35, they will calculate a deemed payment treating all income received from the contract as salary and demanding PAYE tax and national insurance contributions on payments originally paid out as dividends.
HMRC can go back up to six years, so even if a contract is finished there is still a risk that it could be subject to an enquiry.
The tools and guidance provided in this Survival Kit have been constructed by tax and IR35 specialists, led by ex-HMRC inspectors and contract and status experts. It includes key facts, the dreaded HMRC letter, DIY contract review, liability checker, step-by-step IR35 enquiry, common myths, an evidence checklist and what Qdos can do to help.
To ensure you are paying the correct taxes, you will need to determine your IR35 status.
Take a look at our checklist of what you can do to determine and further support evidencing your position. Even with IR35 reform well on its way, you still need to be able to evidence IR35 status for services provided before 6th April 2021.
|Expert contract and working practices review||You should be able to demonstrate that you have taken due diligence in confirming your IR35 position. A contract and working practices review from a specialist is the best way to do this.|
|Confirmation of Arrangements||One of the best forms of evidence in an IR35 enquiry is confirmation of your working practices directly from the end user. Unfortunately many organisations are reluctant to sign documents like this, but it’s hugely beneficial where possible.|
|Business Insurance||As a business, you should carry any necessary insurance policies such as Professional Indemnity and Public Liability, especially if this is required within your contractual agreement. Any written agreements should reflect reality.|
|Company stationary||Letterheads, business cards and a company website can all help to demonstrate that you are operating like a true business on your own account.|
|Supporting documentation||ID badges or email lists where you are clearly defined as a contractor, evidence of using a substitute, or any other documentation which may support your position should be kept safe for use in the event of an enquiry.|
Contracts are often silent on the issue of control. Ideally there will be a clause stating that your company has autonomy over how the services are carried out, but it’s also important to look for any negative wording which suggest the opposite.
There should be a clause in your contract which states that your company can send a replacement contractor should the need ever arise. You have entered into a business agreement and not one of personal service. Because of this, your company should be able to provide the services using whichever representatives it sees fit.
As an independent contractor there should not be any obligation for either party to offer or provide ongoing work. The project should be clearly defined and any additional services should be agreed in a separate contract or extension.
You should rectify any faults or work deemed unsatisfactory on your own time and at your own cost. You should seek to find that this is reflected by a clause in your contract. You often find this phrased as ‘remedial work’.
As an independent business you should carry your own business insurances (Professional Indemnity, Public Liability). These are commonly stipulated if you are working through an agency and it’s important to ensure that you hold the required levels of cover.
At no point in your contract should you be prevented from providing services to other clients. It is helpful if there is a clause in your contract stating that you are able to carry out concurrent work. Having multiple contracts can be a positive indicator towards being outside IR35.
You should find in your contract that it specifies provision of your own equipment necessary for the provision of the services. For certain projects however, this may not be possible. Despite this, having this kind of clause included within your contract would be beneficial where allowed.
Under the new off-payroll working rules to take effect from 6th April 2021, medium-large end clients will take on the responsibility of determining the IR35 status of their contractors. The fee-payer in each engagement will then be responsible for deducting the relevant tax and National Insurance at source. Depending on the structure of the contractual chain, this responsibility usually sits with either the end client or the recruitment agency in the engagement.
What you can do:
Open up a Dialogue with Your Agency/End-Client – Understanding their intentions is the first step. Your tax status won’t be your decision anymore, so speaking with your end user/agency is the best way of determining what will happen and how.
Encourage Your End-Client/Agency to Speak with Qdos –Whilst it may no longer be your responsibility to assess your status, you can still encourage fair and compliant assessments from your client. We have worked with over 2,200 clients and agencies with this process so far, providing training, consultancy and fair assessment processes.
Check Your Status – Whilst we don’t recommend using the CEST tool in general, it is likely to be the first port of call for many end clients. Using this tool will give you a heads up of what your result may be (remember that you might have differing opinions on how some of the questions are answered). For the same reasons, you may prefer to have a independent IR35 contract review completed. Doing so will ensure a higher level of accuracy and provide you with evidence should you require.
A ‘Status Determination Statement’ (SDS) is a document that states the IR35 status of a certain engagement based upon the results of an IR35 assessment including the IR35 status result and the reasoning for the conclusion.
It will be the end client’s responsibility to produce an SDS under the off-payroll rules following their assessment of your status. The SDS must also be shared directly with the contractor.
If, after receipt of the SDS, any party of the contractual chain disagrees with the outcome, they have the right to appeal. This includes you as a contractor.
This is a client-led process and so you should refer to your client for how to dispute your result. However this will usually be in writing and should include detailed reasoning as to your objection.
The end client who issued the SDS must respond to your dispute within 45 days. Failure to do so may result in the end client becoming liable in the event of compliance activity.
If you do choose to appeal the SDS outcome and after reviewing the appeal, your end client decides that the original SDS still stands then they must provide you with their reasoning for such an outcome.
If, however, the initial SDS is proven to be incorrect, then your end client must provide a new SDS. This new SDS must also take into account the changed result.
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