IR35 refers to a piece of tax legislation that has been a common source of contention among many contractors, freelancers and self-employed workers. In fact, many people have discovered that their business and finances are at risk because they have unwittingly committed tax violations. As the tax legislation is notoriously complex and ambiguous, it is always a good idea to arrange a professional IR35 contract review.
Why Do You Need the Correct IR35 Status?
Being inside IR35 means that HMRC considers you to be an employee for tax purposes and your contracts fall within off-payroll working rules. As a result, you must pay full PAYE tax and NICs. By contrast, being outside IR35 indicates that your contracts relate to self-employment, allowing you to file your taxes in a different way.
If you are an independent contractor, freelancer or self-employed worker, it is vital that you ensure that your contracts fall outside IR35. Otherwise, you may be required to pay back not just the taxes you owe but also the accrued interest and other penalties. Furthermore, HMRC may force you to make these payments immediately, leaving you with insufficient time to manage your finances.
What is an IR35 Contract Review and What Does It Entail?
Recent changes to the tax rules have shifted the responsibility of determining IR35 status. Even where you are not responsible, it is still in your best interests to take the necessary steps to ensure compliance and verify that your services fall outside IR35.
An IR35 contract review will provide you with the opportunity to ascertain your status and ensure compliance with the relevant tax rules. A review involves a specialist assessment of your contractual terms and working practices to determine whether or not your services fall within the scope of IR35.
In the majority of cases, a professional contract reviewer will ask you about your working practices. You will also need to submit a copy of your contracts and additional details relating to how you provide your services. Once the necessary documents have been submitted, the reviewer will carry out an evaluation to determine whether the following features are present:
- The right to substitution – whether you have the right to hire another person (or the right to decline them) to complete all or part of your work and pay them accordingly.
- Control – whether you have complete control over your working hours and how a job is completed.
- Mutuality of Obligation – whether your client is obliged to provide you with work and whether you are required to accept it in return.
Why Do You Need a Professional IR35 Contract Review?
If you neither have the time nor the expertise to assess your IR35 status, we would strongly recommend that you arrange a professional contract review, as offered by our team of experts here at BEB. Here are some reasons why this would be a good idea.
1. Demonstrate to HMRC that you have taken “reasonable steps” to verify your status
Note, HMRC can review the status of your business at any time. For this reason, you must always be ready to comply with the tax authorities and prove that you are not just an “employee in disguise”. Having taxation and legal experts review your contracts will enable you to demonstrate your due diligence and also provide HMRC with reasonable evidence to prove that you are indeed self-employed.
2. Feel reassured that you comply with tax regulations
What makes IR35 particularly ambiguous is that HMRC does not publish a simple checklist of things to look out for when assessing your status. Instead, the authorities take a holistic view of specific details relating to your contracts and working practices to determine whether or not you operate within the scope of this particular tax legislation.
If you do not have extensive knowledge of UK tax laws, verifying your IR35 status can be both confusing and time-consuming. However, by seeking expert advice, you can have peace of mind knowing with certainty that you fall outside the scope of IR35 and that your business complies with the applicable tax rules. As a result, you will never run the risk of unknowingly committing any tax violations.
3. Your contracts will always be IR35-friendly
To ensure compliance with the tax rules, your working arrangements should always reflect what is specified in your contracts. For example, if your contracts contain clauses indicating that your business falls outside the scope of IR35, but your working practices would suggest otherwise, you can expect the tax authorities to come knocking on your door.
Having your contracts reviewed by a professional will help ensure that you satisfy HMRC’s definition of “self-employed”. Furthermore, it will reassure you that your contracts match your actual working practices and are free from common IR35-fail clauses.
4. Obtain evidence in support of your IR35 status
In the event that HMRC challenges your status, a professional IR35 contract review may provide evidence that UK off-payroll working rules do not apply to your business. Obtaining an expert opinion on your IR35 status will allow you to provide the tax authorities with the evidentiary support they require in a way that is less likely to be misunderstood.
Furthermore, a professional review service will give you access to legal experts who can negotiate with your intermediary or end-user clients on your behalf. This will enable you to add clauses or make amendments to your contracts as necessary, further strengthening your status as a self-employed worker.
Ask the IR35 Experts for Help
As the rules relating to IR35 are notoriously ambiguous and complicated, it is well worth your time and effort to take the necessary steps to ascertain your status and ensure compliance. By having experts review your contracts, you can have peace of mind knowing that your IR35 status will be verified fairly and accurately. In addition, you will be able to demonstrate your due diligence to the tax authorities.
If you need to verify the IR35 status of your business, our team of experts at BEB Consultancy will be able to offer you expert advice. We can evaluate your contracts to help ensure they match your working status and fall outside the scope of IR35. Get in touch with us today.