IR35 Guidance

Introduction

Many individuals who trade through their own supplier company (personal service company) in the UK have been advised that it is inevitable that they will fall under the HM Revenue & Customs (HMRC) 'rules' for IR35 taxation. This is by no means the case. In fact, it should be your objective to establish that your business is not subject to IR35 at all.

   What really counts in the end is the ability of HMRC to enforce its ruling. It is not HMRC that ultimately decides - it is the courts. Recent case law has not favoured HMRC. You can never guarantee the outcome but, if you take appropriate actions (see below), you can be fairly sure of achieving the right status.

You can help yourself by ensuring three key things:

• That you have a contract which is legally constructed to take account of case law and which offers you maximum protection.
• That your work practices endorse the contractual obligations.
• That you take certain actions to reinforce your position.

None of this needs to be overly burdensome. If you adopt the suggested practices then you will minimise your exposure to risk as HMRC is likely to pick on the weaker cases. Don't be one of those people!

Practices

There are a number of practices recommended by independent advisors that you should consider adopting:

• Ask your financial advisor for their opinion on your exposure to IR35. If they are not up to speed on the issues or willing to help, then find someone who is.
• Discuss your contract with your legal advisor.
• Check the details of contracts thoroughly and make sure you understand them (HMRC may test your understanding). Remember to sign and return a copy and to file your copy safely.
• Check that the contract:
• Does not state the name of specific individuals.
• Reinforces the fact that you are contracting as an independent business.
• Allows your company to substitute an alternative specialist (subject to reasonable conditions).
• Imposes a liability for incomplete or defective work to be remedied at your own cost.
• Does not prohibit you from contracting to do other work concurrently.
• States that you are not paid when on holiday or sick.
• States the project, task(s) or other definable work that logically has a beginning and end to it. "Support" or "Provide advice" will not do.
• Has a start and end date.
• Does not restrict you as to when you start or end your working day.
• Does not impose controls on your day-to-day activity.
• Makes it clear that there is no obligation to accept further work if offered.

The B & M contract does all these things.

• Put the contract terms into practice.
• Diversify by having other real business contracts running concurrently if possible. For example, setting up a Personal Computer for a local business.
• Have an option to work off site as well as on site if possible. This may include a remote connect to the customer site.
• Maintain up-to-date company records (or have your advisor do it for you).

Actions

Independent advisors recommend the following actions (should you not have initiated them already):

• Establish the physical aspect of your company office. If at home, this should be a self-contained area with its own facilities including desk, filing cabinets, computer, telephone, fax machine etc.
• Employ a secretary or administrator, even if part time.
• Display your Certificate of Incorporation in your office.
• Display any training certificates / qualifications that you have gained on courses paid for by your company.
• Advertise your company's services. The simplest way to do this is to create a web site using a free service provider and to register the site with a number of search engines.
• Procure professional stationery for your business. This should include headed paper (meeting the requirements of the Companies Act) and business cards for you and anyone else who may represent your company.
• Review your invoices for professional presentation and completeness.
• Obtain insurance for Public Liability, Employer's Liability and Professional Indemnity. Display these insurance certificates.
• Set up a company pension plan and health insurance (provided finances permit!).
• Join a trade association or two. Examples may include the British Computer Society, the Professional Contractors Group and your local Chamber of Commerce.

Important Footnote

B & M is not a professional, legal, financial or tax advisor and can accept no liability for the information provided above. It is most important that you talk about this subject to your own advisor who should be willing and able to represent your case if HMRC asks questions. If you are not satisfied that your advisor understands the subject sufficiently or that he or she is not being proactive enough, then B & M may be able to point you to another source of professional advice.