Opinion
DO I NEED LEGAL ADVICE?
If you employ hundreds of contractors or
freelancers to deliver work on a short-
term contract, there is a huge amount of
work in determining whether every one
of them is work ing inside or outside IR35.
For some the task is too great so they
either don’t engage with contractors using
a PSC, move them into an ‘umbrella’ –
whereby a third party administrates the
contracts on the company’s behalf, or
place everyone inside IR35 and minimise
the risk of getting it wrong and a tax bill.
It’s complex to determine it correctly.
There are many factors to consider, such
as how the person delivers the work, use
of their own equipment and if you have
your own professional insurance.
Using a third-party legal advisor can
help you make an accurate assessment.
HMRC also has a tool cal led CEST, though
it’s not as reliable as you would think, so
legal advice is encouraged.
WHY DOES IT MATTER IF
YOU ARE INSIDE?
Many people are being (incorrectly) found
to be operating inside IR35 and deemed
to be like an employee. So, they would
pay employment taxes but receive none
of the benefits that employees are entitled
to by law.
Not only are contractors now paying
employee taxes, end clients are more
often than not making contractors pay
the client’s employer’s taxes – National
Insurance and Apprenticeship levy.
Where an umbrella scheme is being
introduced, people see a further reduction
in pay because there are admin costs.
Either way, it can have a detrimental
ef fect on your income and how you work.
NONE OF THE BENEFITS
AND RIGHTS. IT’S NOT FAIR
Many people have legitimate businesses
and pay their corporation and NI tax. But
because of the way companies are making
assessments, many people are finding
that they are effectively being locked out
of running a business. Plus, they strongly
object to ‘inside IR35’ rulings and paying
all the employers’ tax but receiving none
of the benefits and rights.
O Efficiency gains – tenders and
proposals for fixed-price job gains.
O Proof of assistance – employee
records, accounting records.
O Marketing spend – receipts, briefs
and copies for marketing undertaken.
O Repair at own expense – contract
clauses, details of mistakes rectified,
details of costs incurred by you to
rectify your mistakes.
O Client risk – accounting records of
write-offs, for example.
O Business entity – receipts for
production as well as copies of
materials such as websites and
business stationery.
O Billing – invoices and correspondence
related to payment terms.
O Substitution ie where someone else
del ivers work on your behal f – contact
clauses, level of sig n-of f by the cl ient,
payment terms, audit trail of previous
substitutes and subcontracting.THE CONSEQUENCES
As people want to keep their legitimate
businesses running, they are not
accepting the inside IR35 assessments,
leaving contracts and looking for ones
that are ‘outside IR35’.
A handful are staying with their client
if they have been deemed inside simply
because they have a mortgage to pay.
However that’s high risk, because HMRC
could say you should have been operating
that way all along and land you with a
retrospective tax bill.HOW CAN YOU PREPARE?
A third-party assessor is quicker and
cheaper than you think (certainly cheaper
than getting it wrong). Then it’s all about
how you structure things and the evidence
you have such as:O Insurance policies and schedules –
keep the schedule for at least five
years for Professional Indemnity.
O Business premises proof - lease or
contract for premises and utility bills.
O Contracts – for all engagements you
have with clients.PROFILE
Poyser is founder and CEO of inniAccounts, an online
accountancy for self-employed people and founder of
offpayroll.org - a place to find IR35-friendly clients.
w: http://www.offpayroll.org.uk