IR35 - Step 1 in surviving IR35

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 is to get an expert to review the contract. There are plenty of experienced lawyers who would be willing to look it over, and the average price is just 120. Considering how important it is that you get this right, and what you will be charged if you get it wrong, it's well worth the price.

Here are some of the things that IR35 experts check when they review contracts for IR35 status:

1. If you fail, does your company bear the financial risk of it? [Yes = Good]

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

3. Is your company permitted to send alternative personnel? [Yes = Good]

4. Will the risk of bad debts be born by your company? [Yes = Good]

5. Is your contract a "Contract for services" rather then a "Service contract"? [Yes = Good]

6. Are you eligible for holiday or sick pay? [No = Good]

7. Are you an d your client related as if you were "master and servant"? [no = Good]

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

For a UK freelancer, if all of the above seems to be in order, then you have a good chance of being unaffected by an IR35 investigation. However, you need to consider not only what is written in your contract, but also how it is written. Even if all of the contents of your contract are in order, a badly phrased paragraph could still easily sink you.

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!

Article Source: http://articlesmore.com

This article was brought to you by Home Loans Direct, and the Small Business & IR35 Contractor Accountants Antony J. Holdsworth & Co.

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