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Outside of IR35
What is IR35?
Essentially if you have the same benefits, responsibilities and control as a permanent employee, then you would more than likely be classed as inside IR35 (caught by IR35). In summary, some of the key factors that determine if you’re inside or outside IR35 are control, financial risk, substitution, provision of equipment (sometimes, especially in secure sites you may have to use a client side equipment), right of dismissal and employee benefits.
Many of the above will be detailed in your contract. However, it is best to remember that although HM Revenue and Customs will more than likely want to see your contract, your working practices must reflect what is in your contract.
During an investigation, if HMRC request sight of a contract and decide that it is ‘caught’ by IR35, they will calculate a deemed payment, treating all income received as salary and demanding all tax and national insurance contributions on payments originally paid out as dividends.
Obviously there are a huge amount of contractors who are genuinely independent and they face the same struggle to prove this fact to HMRC. Therefore it is vital that all contractors working through their own companies are fully aware of the legislation and do everything possible to ensure that they remain legitimately outside of IR35.
HMRC can go into a lot of depth to investigate your working practices and accounts. This can be quite a stressful time for any contractor and company.
What action has HMRC taken to date?
Why is there so much in the press about IR35 now?
The problem is that the IR35 legislation as it existed pre-April 2017, was struggling to manage the fact that not everyone is a cynical employer or employee, trying to avoid tax and NI. Most people move into contracting because they like working under assignments, having some control as to when they work, taking extended breaks between assignments, choosing where they work and acquiring new skills on new projects.
This flexible, mobile, skilled resource model suits lots of companies who need projects completing by experienced and skilled specialists, often at short notice, without increasing internal, permanent headcount and involving themselves in costly recruitment processes. The law has struggled to strike a balance here and this has resulted in a lot of press about developments as to how the legislation is to be interpreted and applied.
Who is impacted?
This legislative change only impacts contractors working in the Public Sector, the agency they are working through and of course the Public-Sector bodies to whom the contractors are delivering services, e.g. the NHS, government departments, local authorities. For clarity, if you are contracted to a firm in the private sector, you remain unaffected by the recent changes.
Some contractors operating in the Public Sector, because of the role and conditions under which the role is delivered, may have been caught by the revised IR35 legislation. As a result they be required to arrange to pay a ‘deemed salary’, which involves PAYE tax and NI contributions being deducted by the Public Body or the agency through whom they provide their services.
As such, Karia Accountants have partnered up with QDOS, who offer:
Full IR35 contract reviews
Tax Enquiry Insurance (Insurance to cover accountancy fees for an investigation)
Tax Liability Cover (Insurance to cover interest and penalties due to HMRC)
If you are under investigation, it can become very expensive to have an accountant to represent you as the charge is normally by the hour.
Therefore, the insurance cost would give you some peace of mind. However, with that said, we do urge you to read all the terms and conditions of the policy before purchasing any policy or cover and contact QDOS for enquiries if you are unsure.