IR35

If you were effectively acting as an employee of your client, rather than as an independent contractor in business in your own right, as defined by HM Revenue & Customs and the courts, you would fall within the IR35 rules.

This would mean a large increase in the tax and National Insurance payable, and you would not be able to retain profits to grow your business.

Establishing whether this applies to you or not can be very complex and it may well not be possible to come up with a definitive answer. It is therefore vital to obtain professional advice on this subject and Monahans can assist you in this.

Whilst there are a large number of factors that need to be taken into account with regards to this, some of the key ones are:

• Do you personally have to perform the services, or could another suitably skilled individual be brought in by you to carry out some of them?
• Do you have control over how, where and when your services are performed or do you follow instructions from your client?
• Are you exposed to a degree of financial risk that an employee would not be subjected to?
• Are you really “in business”, or do you just turn up to work?
  

Monahans have a dedicated team of specialists looking after the affairs of Contractors and can advise on all aspects of becoming a Contractor. Or if you are already a Contractor and need an Accountant to help you manage your affairs as efficiently and profitably as possible, we have the knowledge and expertise to do just that.

Contact our Contractor Team via this link if you would like a friendly chat about how we could help you.

HM Revenue & Customs has been working with the Professional Contractors Group and various other interested parties to explore new approaches to the way IR35 is administered and to monitor progress.

They have now released their updated guidance which consists of 12 "business entity tests" to which you give a simple yes/no answer.   It is important to be clear that these tests are not intended to decide if you fall within IR35 but to determine the risk that HMRC will seek to investigate your status should you come to their attention. 

HMRC is piloting these tests and scenarios, and emphasise that they are "not set in stone" and they may change "in response to feedback and business changes"

The tests cover matters such as do you own or rent business premises, do you need professional indemnity insurance, do you spend money on advertising and do you have a business plan in place.

Use this link to see the complete guidance document
 
http://www.hmrc.gov.uk/ir35/guidance.pdf
 
The new guidance has been criticised by several bodies, principally due to the scoring allocated to each test as it is felt that a disproportionate number of businesses will fall into the high risk category. 
 
There is no real reason not to take the test - as a minimum it may highlight some simple  changes that would alter your risk profile, or identify documentary evidence that you should be keeping to support a future defence against IR35. 
 
The guidance in no way changes the legislation of IR35 and does not affect any of the rulings or cases on which our IR35 advice is based. 
 
It is particularly worth considering "The Assistance test", as passing this would almost certainly put you within the low risk category should HMRC come knocking.  In order to pass it as written in the guidance, 25% of your company turnover needs to be produced by workers who are not directors or shareholders in the company.
 
For further guidance on this subject, contact Sam Dale or call him on 01793 818300.

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