What is the IR35 issue?

IR35 is a piece of legislation which allows HMRC to treat private contractors as if they were employees. It was introduced to combat the problem of “disguised employment”, where employees offer their services via limited companies to pay less tax and National Insurance.

What triggers IR35?

The triggers of an IR35 review can be either direct, because a contractor meets HMRC’s risk criteria, or indirect, as a result of another investigation, such as into corporation tax, VAT or payroll.

How do I stay away from IR35?

Review all your relationships with contractors and/or consultants. Make sure your terms of engagement are clear and accurate. Provide contractors with their Status Determination Statement. Consider changing some contractors into employees if they fall within IR35 and if this is a more practical solution for you both.

Do I need to worry about IR35?

Who does not need to worry about IR35? IR35 will not impact you if you fall into the following areas: You’re a permanent employee of a business, receiving salary and payroll compensation, and making National Insurance (NI) and tax payments as normal.

Do I fall within IR35?

If you are found to fall inside IR35, you are expected to pay the same amount of tax and national insurance that a permanent employee would pay. Within the public sector, the agency or hiring body will deduct national insurance and income tax from your pay cheque each month.

Who falls under IR35?

IR35 is a word used to describe two sets of tax legislation that are designed to combat tax avoidance by workers, and the firms hiring them, who are supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used.

How far can HMRC go back for IR35?

HMRC has the power to go as far back as 20 years in an IR35 investigation if they believe fraud has been committed, or deliberate tax avoidance. If during the course of an investigation HMRC consider the error(s) to be honest mistakes, they’re likely to go back four years.

How do you pass an IR35 test?

To guarantee a pass you must confirm the following:

  1. That any change in ‘task’ throughout the contract would need to be arranged under a new contract.
  2. That the client cannot provide input as to how work is carried out.
  3. That where you carry your work out is determined either by yourself or the task itself, not the client.

How do I know if IR35 applies?

IR35 will only apply if the individual is working for a client under circumstances that if it were not for the imposition of the Limited company or Partnership (known as the “intermediary”) would be one of employment. Anyone working via an intermediary will be caught by new rules if they fail the ‘IR35 test’.

How do you prove outside IR35?

Here are ten pieces of evidence you to collect to help prove you are outside IR35:

  1. When you are sent home, but employees have to stay.
  2. Taking time off by informing, and not asking, your client.
  3. When you have to rectify defective work in your own time.
  4. Tendering for contracts.
  5. When you deliver speculative work for no pay.

Does IR35 only apply to limited companies?

Sole Traders and IR35 “The specific legislation only applies to limited companies (and partnerships). However, status is also an issue for sole traders. The main difference is that the end client would foot the bill if they were deemed to be disguised employees, rather than the contractor himself.”

Does HMRC check bank accounts?

Currently, the answer to the question is a qualified ‘yes’. If HMRC is investigating a taxpayer, it has the power to issue a ‘third party notice’ to request information from banks and other financial institutions. It can also issue these notices to a taxpayer’s lawyers, accountants and estate agents.

Why was IR35 introduced in the first place?

IR35 was originally introduced by Gordon Brown, to prevent employees from avoiding tax by being treated as contractors. However, since then the legislation has become notorious, sometimes implicating businesses that believed they were hiring contractors appropriately, only for HMRC to disagree.

What can cause a contract to fail IR35?

But there are a number of classic reasons making a contract fail IR35, which contractors can take steps to avoid. Here are the main ones: If a client organisation has previously been found by HMRC to have used ‘disguised employees’, then the taxman can insist that all future contractors be treated as employees.

Can a contractor duck the issue of IR35?

By taking the appropriate steps, both contractors and businesses can ensure that they do not fall foul of IR35. Remember, IR35 is something that applies to a role, rather than an individual. So just because you were outside it on your last assignment, doesn’t mean that you won’t be inside it on your next one.

When do I need to make an IR35 payment?

So for example, if a contractor operates via their own limited company, but is otherwise treated the same as their client’s employees, they are considered to be ‘inside IR35’ and will need to make additional tax payments. What is the new change concerning IR35?