IR35 Accountancy For Contractors
If you are a contractor, freelancer or consultant it is essential that your accountant understands IR35, the complex tax legislation that prevents contractors from working as ‘disguised employees’ and paying less tax.
Many accountants have started to offer ‘one-stop-shop’ IR35 reviews. These may be automated or a manual check using a tool such as HMRC’s CEST.
What is IR35?
IR35 is the name of a piece of tax legislation designed to target Personal Service Companies (PSCs). It was introduced as part of a government drive to crack down on ‘disguised employment’.
Essentially, IR35 is an anti-avoidance law that was intended to prevent contractors who worked through limited companies from using their company structure to avoid paying higher tax and national insurance. It’s important to understand the rules and make sure you’re not falling foul of IR35.
You should have regular conversations with your agency, your client and your accountant to ensure that you’re completely clear about your IR35 status. Alternatively, you could choose to have a specialist IR35 accountancy firm take a look at your contract and work practices. They should be able to provide you with an opinion on whether your contract falls inside or outside IR35. They should also be able to offer you advice on how to change your working practices to place you outside of the legislation.
IR35 compliance is a complex area of legislation that requires a specialist contractor accountant. It’s important to get up to speed with the legislation as non-compliance can result in significant penalties and potentially severe financial implications.
Ensure that your organisation has a system in place for all new engagements with relevant contractors. This includes determining their status, ensuring they pay the correct tax and national insurance as ‘inside’ or ‘outside’ of IR35.
Review each contract against IR35 compliance, taking into account the written terms and working practices of that contract. For example, if the contract states you must provide your own equipment for a service but you’re using the client’s, that could be viewed as a ‘contractual chain’.
The IR35 rules are designed to catch “disguised employees” who set up limited companies as “self-employed” workers but work as employees for a fee-payer in return for the services they deliver. The legislation is a way for HMRC to clamp down on these practices and keep income taxes and national insurance payments correct and legally applied.
IR35 reviews are one of the most common tax issues contractors face, but they can be very complicated. A contractor’s best defence is to seek expert ir35 accountancy from an experienced, independent firm with a proven track record of dealing with these issues and who are associated with professional bodies such as ACCA, CIMA or ICAEW.
Choosing an IR35 accountant that you can work with online is often the most effective way to ensure you get the best possible service. These firms will have the expertise to advise you on IR35 compliance and provide a range of flexible solutions, which are designed to suit the specific needs of contractors and freelancers.
IR35 reviews are a time-consuming and expensive process, so it is important that you take advantage of the advice of a specialist ir35 accountant as soon as HMRC starts an investigation. The last thing you want is a hefty additional tax and National Insurance Contributions bill in the future!
If you’re unsure about your status under IR35, we can provide expert advice on all aspects of the legislation. This will enable you to be confident in completing assignments and projects as an authentic limited company contractor.
IR35 is a complex piece of legislation that can be challenging to interpret and navigate. However, we have developed an easy to understand IR35 assessment that can assist you in determining whether your working practices and contract are ‘inside’ or ‘outside’ IR35.
There are three key principles that HMRC use to determine whether an assignment is deemed inside or outside IR35. They are: Supervision, Direction and Control (SDC), Substitution and Mutuality of Obligation (MOO).
As a self-employed contractor or freelancer you should have as much control over your contract and working conditions as possible. This should be reflected in your contracts, and evidence that you are not required to carry out your work at the same times as other employees in your client’s permanent team is essential to demonstrate this.