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Surviving IR35 - Step 1

IR35, more properly known as the Intermediaries Legislation, was introduced in early 2000. It was designed to prevent the avoidance of tax and national insurance contributions (NIC) via the use of intermediary companies, by taxing such companies at a rate similar to the tax paid by employed workers.

This has been an unpopular piece of legislation, especially since most UK freelancers are genuinely self employed consultants who are taking entrepreneurial risk in providing their services. A well worded contract can help them underline their self employed status. Likewise, a poorly worded contract can undermine that status at a stroke.

The easiest way to solve this problem, is just to have your contract checked over by an expert. A qualified IR35 reviewer will look over it for about 120. This is really a very small amount, considering the thousands of pounds that you stand to lose if you get it wrong. It's plain, good economic sense to get your contract reviewed.

So let's go over some of the key factors that you need to consider. Here are a few questions that may help you determine if your contract is likely to pass.

1. If you fail, does your company bear the financial risk of it? [Yes = Good]

2. Will sound management profit your company in performing a contract? [Yes = Good]

3. Is your contract specific to you, or does your company have the right to send alternative personnel? [Yes = Good]

4. Will the risk of bad debts be born by your company? [Yes = Good]

5. Is your contract a "Contract for services" rather then a "Service contract"? [Yes = Good]

6. Will you receive sick or holiday pay? [no = Good]

7. Are you in a "master and servant" relationship with your client? [No = Good]

8. Do you and your client have mutuality of obligations? [No = Good]

If you are a UK freelancer and all of the above check out in your case, then you might stand a good chance of staying outside IR35. But a word of warning about contracts: It's not just about WHAT is written, but also the WAY it is written. When reviewing contracts, IR35 experts look very closely at wording and phrasing. They know that poor wording can create a chink in your armour that the tax authorities can exploit.

So, step one in surviving IR35 is to get all contracts reviewed by an IR35 expert before signing. If the expert advises that the contract or part of it should be changed, get it changed before signing.

Article Source: http://www.top-affiliate.com/articles

This page was brought to you by the companies Home Loans Direct, and the Small Business & IR35 Contractor Accountants Antony J. Holdsworth & Co.

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