Published on March 13, 2014
your guide to IR35 legislation www.freestyleaccounting.com
1. An introduction to IR35 legislation... • The IR35 legislation came into force in April 2000 • It was introduced because the Government believed that some contractors were providing their services through a limited company as a means of avoiding tax and national insurance contributions
How does it work? • In a commonplace business relationship there is no contract between you, the Contractor, and the End Client • IR35 therefore creates a hypothetical contract to establish what the relationship would be if you were engaged directly by the End Client • Would it be deemed: – a Contract of Service?, i.e. employment or – a Contract for Services?, i.e. self employment
2. IR35 rules explained - determining your status • HMRC will determine your employment status by looking at 2 things: – contract wording which shows the engagement to be between two independent parties and... – working practices that demonstrate this independence
Determining your status • HMRC will consider 3 key areas of any engagement: – Control – to establish whether the End Client is controlling the work, or whether the Contractor has reasonable autonomy in the performance of the services – Substitution – to establish whether it is your company that has been engaged to provide the service, or you personally – Mutuality of Obligation – to establish whether the End Client is obliged to offer you more work and – if it is offered – whether you are obliged to accept it
3. IR35 Contract Reviews - why have your contract reviewed? • It gives you the peace of mind to know that if your engagement does fall outside of IR35 then you can distribute the company profits accordingly • You have an independent opinion which shows that you have taken reasonable care to establish the tax opinion and HMRC therefore cannot justify the levying of a financial penalty
What’s involved in an IR35 Contract Review? • The review has two distinct parts: – the contract wording is considered with particular attention paid to how it deals with the three key elements of control, substitution and mutuality of obligation – a questionnaire (which you will be asked to complete) will seek to address both the working practices of the assignment and the business practices of your company
For more information on IR35 legislation visit Freestyle Accounting
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