If you are self-employed, a contractor or a freelancer, being found violating IR35 can have severe consequences for your trade or business. Not only will you be required to pay back the taxes you owe, but you will also have to deal with the interest payments and any penalties that accrue. Furthermore, Her Majesty’s Revenue and Customs (HMRC) may force you to take care of these matters sooner rather than later, giving you less time to prepare your finances and put them in order.
This is why compliance with this tax legislation is an absolute must. With IR35 set to be extended to the private sector next year, you must ensure that you are a legitimate self-employed worker/service provider and that your business or trade is indeed “outside” the remit of the rules. Otherwise, you will be putting your finances and business at risk.
Importance of an IR35 Contract Review
HMRC can conduct a status review of your business at any time. If and when this happens, you will have to prove that you are genuinely self-employed and that you conduct your business on your own accord. You must also show evidence that you are not just an “employee in disguise”.
One way to do this is to make certain that your contracts with your clients adhere to the standards of IR35. An HMRC inspector will conduct a thorough review of your contract arrangements to ensure that you are indeed self-employed. Accordingly, you must make sure that the way you work in practice reflects what is written in your contracts.
The best way to ensure that your client contracts are IR35-friendly is to allow tax and employment law experts to perform an IR35 contract review. The mere fact that you have taken a “reasonable step” to verify your status by having an expert analyse your contracts could demonstrate to HMRC that you are definitely self-employed.
On top of this, there are other benefits to allowing a tax and employment law expert to review your contracts. Here are just some.
- Your contracts will comply with IR35 standards
A contract review specialist will ensure that:
- The written contract between you (the contractor) and your intermediary (a recruitment agency, for instance) shows that you are “self-employed” in accordance with HMRC’s definition.
- The written contract between you and your intermediary reflects the terms of the upper-level agreement between your intermediary and the end-user client.
- The terms of the contract are executed and performed in the real world, and reflect your working practices as a contractor, freelancer or service provider.
- You, as a contractor, can provide written confirmation of your working arrangements.
- You have a written contract from the outset. Bear in mind that HMRC can create a “hypothetical contract” according to the work practices it thinks exist between you and your end-user client. This is why having a written contract in place is a must.
- Your IR35 status will be verified
An expert adept at performing IR35 contract reviews will go over your contract and examine it for common IR35-fail clauses. They will also help you verify whether or not you or your business falls within the scope of IR35.
- Your employment status can be negotiated
In some cases, a contract review specialist may negotiate with your intermediary or even your end-user client to include new clauses or amend existing provisions in your contract. This will help strengthen your status as a self-employed individual.
Tips for an IR35 Contract Review
There are a few things you must be aware of when having your contracts reviewed. By following this advice, you will strengthen your status as a self-employed contractor or business owner and prove that your contracts are “outside” the remit of IR35.
- Always review your contracts first
Make it a point to have an expert go over your contracts with your clients before signing them. Bear in mind that it can be extremely challenging to modify a contract once you have begun providing your services/work.
- Let the professionals handle the negotiations
While many recruitment agencies or intermediaries are familiar with IR35, some may be unwilling to modify or revise the terms of your contract. As such, make sure that you let the tax and employment law experts negotiate on your behalf to protect yourself and get the best results possible.
- IR35 always applies to contracts, not individuals
Always keep in mind that IR35 rules apply to individual agreements rather than people. This means you can have one contract that falls under IR35 while others remain outside this tax legislation. As such, it is beneficial to review all your contracts to make sure they are not within the scope of IR35.
- Review your contracts even if you don’t change clients
It is best practice to have your contracts reviewed even if you are only dealing with renewals. This will help ensure that the terms of your contracts still mirror your working arrangements, proving your status as self-employed.
- Use a trusted IR35 contract review specialist
Some contract reviewers will only provide you with a general overview of your contracts. This is why it is advisable to employ trusted contract review specialists, such as the team here at BEB. By choosing someone who has a track record of providing quality contract review services, you can be sure that not only will you obtain a review of your written contracts, but you will also receive a thorough assessment of your work practices to ensure that they match up. This will provide HMRC with a better understanding of your working relationships with your clients.
Enlisting the services of a respected review specialist will also assure you that you are leaving no stone unturned. Every clause in your contracts will be scrutinised carefully to identify any failing provisions and ensure that they are amended accordingly.
Cost of IR35
IR35 could put a significant dent in your earnings as a contractor. As mentioned earlier, if you are proven to be covered by IR35 after claiming for many years that this piece of tax legislation does not apply to you, you could end up paying thousands of pounds in back taxes, interest payments and penalties. More than that, your income will be significantly reduced. This is because your income will be in the form of a deemed payment. You will also have to shell out an additional 5% to cover the cost of running a limited company if you currently have one.
Therefore, you must ensure that your contracts are IR35-friendly and that your business or trade falls outside the scope of this tax legislation.
Let BEB Help
Because your contracts have a significant impact on how HMRC will view your IR35 status, it is crucial that you let an expert thoroughly review them. With the help of a contract review specialist, you can have peace of mind knowing that your business will remain outside the scope of IR35, and this will in turn enable you to avoid any tax penalties that could potentially put your business or trade at risk.
Throughout the years, BEB has established a reputation for providing top-notch contract review solutions to businesses of all sizes across different industries. When you enlist our services, you can count on us to perform a fully detailed review to ensure that your contracts:
- Cover your exact requirements so that they protect you from any risks.
- Are watertight, clear and free from any ambiguous wording.
- Are free from clauses that could put your trade or business at a disadvantage.
Most importantly, we will ensure that your contracts and agreements comply with IR35 rules.
Speak to us at BEB today and allow us to review your contracts to ensure IR35 compliance.