Surviving IR35 - Step 1

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.

This law has become rather disliked, particularly by freelancers, who typically take significant risks in their business. If they have a well written conmtract, then it supports them, and highlights their self employed position. However, if it is poorly written, thenit can undermine them and even fall foul of the dreaded IR35.

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.

Before you send it off for review, I'd suggest you check some things yourself, just to see if there's anything that you obviously need to change.

1. Does your company bear the financial risks of failure? [Yes = Good]

2. Does your company profit from sound management in performing a contract? [Yes = Good]

3. Is your contract specific to you, or does your company have the right to send alternative personnel? [Yes = Good]

4. Will the risk of bad debts be born by your company? [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. Is the relationship between you and your client one of "master and servant"? [No = Good]

8. Do you and your client have mutuality of obligations? [No = Good]

If you are a freelancer, working from the UK, and everythign listed above checks out for you, then you are likely to be fine in the event of an investigation. However, be careful. It's not just what your contract says that matters, but also how it is written. IR35 investigators look very closely at the precise wording of contracts, so you need to be sure you use exactly the right phrase.

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!

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This article has been provided by the companies Home Loans Direct, and the Small Business & IR35 Contractor Accountants Antony J. Holdsworth & Co.