Contractors can use the tips and advice in this blog to prevent their contracts from falling inside of the IR35 legislation.
IR35 is a tax legislation that was introduced to tackle tax avoidance by contractors acting as ‘disguised employees’.
Contractors deemed to be outside of IR35 receive limited company tax benefits, whereas those deemed to be inside are taxed like regular permanent employees, negating the tax benefits.
Most contractors prefer to work outside of IR35 because of the significant financial gains they can make by paying less tax.
Tips and advice to avoid falling inside of IR35
Follow the advice below to give yourself the best possible chance of being deemed outside of IR35.
Understand IR35 – Having a good understanding of IR35, what it means to fall inside or outside of it, and the factors that decide where a contract falls will help you to make informed decisions about the way you run your business.
Know your status – Use HMRC’s employment status toolor speak to an accountant to get an independent review of your IR35 status and advice on what changes you should make to stay outside.
Conduct yourself as a business – Conduct yourself as a business and not an employee. Make sure that you always have multiple clients rather than relying heavily on just one or two clients. Create a business website and social media profiles to market yourself online and update them regularly.
Know your contracts – The contract between you and your clientis a key indicator of your employment status so pay careful attention to its wording. Including a substitution clause in every contract can prove that you are operating as a business rather than providing a personal service.
Work autonomously– If you are operating as a business you should have control over the hours you work and the location you work from.
Talk to clients – Talk to your clients about IR35 and work together to create a contract and way of working that takes IR35 into consideration and suits both parties.
Keep all correspondence– Keep a record of all correspondence between you and your clients in case you are ever investigated by HMRC and require proof to support your case.
If you require help with limited company tax or IR35, get in touch with our team of accountants here at Michael Bell by giving us a call on 01484 690 730.