IR35 has not been abolished and still represents a very real threat to any contractors livelihood. Although the legislation is being reviewed by the Office of Tax Simplification, all the evidence suggests that IR35 will remain in force for some years to come.
You can take a range of simple and inexpensive measures to reduce the chances of your contract being found inside the
IR35 rules by an HMRC investigation, helping you avoid a large tax bill.
Here are five tips to keep your contract outside IR35:
1. Run your company like a business
Being a genuine contractor, you are in business on your own account, so act like a business person and run your business accordingly. Register a limited company, open a bank account, buy insurance, appoint an accountant, set up a home office, put business bills in the companys name, create a website and print business stationery. Any other small business would do just the same, and your contractor limited company is just like any other small business.
2. Take out tax investigation insurance
Responding to even straightforward HMRC enquiries can be time consuming, costly and stressful. Investing in a comprehensive tax insurance policy means you can hand over any HMRC investigation to your accountant. Some policies are bundled with other business insurance, and investigation insurance is included with membership of organisations such as PCG. Remember to always check the policy small print carefully to make sure everything you may need if youre investigated by HMRC is included.
3. Get each new contract reviewed by an expert
The starting point of many HMRC IR35 cases is the contract. A contract review is included in many contractor accountant services, or costs a few tens of pounds from an IR35 specialist. Losing an IR35 case could financially ruin you, so the small investment required to ensure your contract is IR35 friendly is a worthwhile investment.
4. Ask your client for a confirmation of arrangements
Contracts are an important element of staying outside the
IR35 rules. But what happens in the real world is even more important, so HMRC will look hard at your working practices. A confirmation of arrangements is a description of your working relationship with your client, signed or otherwise formally agreed with the client. This can be a vital piece of evidence in an IR35 investigation, so always ask your client to confirm your working arrangements.
5. Dont act like an employee
Many contractors come unstuck because they undertake tasks as if they were an employee; even things as mundane as organising the Christmas party or volunteering to be a fire marshal. Thats what employees do, not contractors, so tax inspectors can use it as evidence that youre a disguised employee. A social drink after work with the clients employees is OK, but dont go to any staff events. And if youre listed in company directories or organisation charts, make sure HR know to categorise you as an independent contractor.
