In the first in a short series of posts, our guest bloggers Dave Cooper and Brian Ackerley, from independent employment tax consultants ‘Employment Tax for Business’ (ET4B), comment and invite debate on the subject of IR35.
Hello, Dave and Brian
here. We hope you find these blogs useful – feel free to post comments on the
blog or one of the social media channels and we’ll do our best to come back to
you.
IR35 – an introduction
Most of you will have heard of 'IR35'. Basically the rules
are aimed at Personal Service Companies (PSCs) which essentially provide the
personal services of one worker, to another client business. Briefly the rules
say that if the worker would be an employee of the client (i.e. the end-user of
the service) but for the use of the PSC, then the PSC itself has to account for PAYE and NIC on virtually all the
income from that contract.
IR35 goes back a number of years, and for much of that time the
rules seemed to be nicely withering on the vine. However, it only needed a few
unwelcome headlines a couple of years ago (the revelations that many senior
Civil Servants were being paid via their own companies, just to save tax) to
persuade the government to tighten things up.
Outside the Public Sector they have implemented this using two methods; firstly in 2012 HMRC issued its 'Business Entity Tests' – in short
these provide the contractor with a method of 'self-assessing' whether they are
at risk of an 'IR35 compliance review' by HMRC. The second step is that HMRC
has greatly increased its (previously modest) process for policing IR35, by
creation of specific 'IR35 review' teams. Consequently we have seen increased HMRC
IR35 review activity in the last 12 months.
So if you're running your own PSC, are you on your own then? Well, not quite. There are some very legitimate commercial reasons why Primat
(and its clients) recognise your wish to stay outside IR35 too.
Perhaps the first thing to say is that the engagement
contract itself, so long as it is accurately worded, can go a long way in
supporting the contractor's IR35 position. For instance, terms which refer to a
contractor's legitimate 'right of substitution', confirm a lack of 'mutuality
of obligation', confirm that the contractor is only subject to a limited amount
of control, and that the contractor does have to provide their own external
insurances, do go a long way. These are each contributory factors, which case
law has established are important, in establishing whether or not the
contractor has the trappings of being in business in their own right.
As well as helping to run an active information programme
for candidates, we will be posting some
additional IR35 related articles in the coming weeks, which may include:
- How the documenting of changes at different
stages of the contract can assist further;
- Are the 'Business Entity Tests' realistic; and
if not, what else might you do to reduce your risk rating?
- Why might you be selected for IR35 Review by
HMRC, and what happens if you are? (in short, and to quote Douglas Adams, 'Don't
Panic!')
Throughout these articles we will be looking at how Primat
(and the client) can actively help in this process. In the meantime if you do
have a specific IR35 or other tax-related topic that you would like to be
covered in our future guest blogs, do let us know.
Is IR35 a real worry for
you, or just a load of hot air? Where possible we will be happy to respond to
any questions or comments that you have, and/or ensure these matters are
covered in the later articles.
Thanks for reading!
Brain & Dave – ET4B
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