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The Intermediaries Legislation, more usually known as IR35, was first adopted towards the start of 2000. When it was introduced, it was supposed to stop workers from avoiding paying tax, and enforce the mandatory National Insurance Contribution (NIC). It would do this by forcing certain companies to pay the same tax as their employees. Obviously, people have not liked this, especially freelancers who frequently take considerable risks in their business. Almost all freelancers are self employed, and so can easily be caught out by this new tax. A contract that is well phrased and clear will be fine, but the smallest mistake in word choice can be enough to sink you. The easiest way to solve this problem, is just to have your contract checked over by an expert. A qualified IR35 reviewer will look over it for about 120. This is really a very small amount, considering the thousands of pounds that you stand to lose if you get it wrong. It's plain, good economic sense to get your contract reviewed. Before you send it off for review, I'd suggest you check some things yourself, just to see if there's anything that you obviously need to change. 1. Does your company bear the financial risks of failure? [Yes = Good] 2. Will sound management profit your company in performing a contract? [Yes = Good] 3. Is your contract specific to you, or does your company have the right to send alternative personnel? [Yes = Good] 4. Does your company bear the risk of bad debts? [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 in a "master and servant" relationship with your client? [No = Good] 8. Do you and your client have mutuality of obligations? [no = Good] If you are a freelancer, working from the UK, and everythign listed above checks out for you, then you are likely to be fine in the event of an investigation. However, be careful. It's not just what your contract says that matters, but also how it is written. IR35 investigators look very closely at the precise wording of contracts, so you need to be sure you use exactly the right phrase. So, the first step in making sure you are completely in the clear with regards to IR35 is to contact an expert reviewer. Get them to take a look at your contract, and sound out anything that might trip you up. Just be sure you get thsi done before you put pen to paper and actually sign it.
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This page has been provided by Home Loans Direct and Small Business & IR35 Contractor Accountants Antony J. Holdsworth & Co.
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