A Moment On The Subject Of The IR35

The vast majority of IR35 disputes start as Employer Compliance Reviews after which elevate to status investigations of the contractor’s engagement(s). Whilst the mechanics of the IR35 investigation which follows might not alter unduly within the future, recent amendments to the way contractors report information on their returns to HMRC combined with the new powers that HMRC is going to be introducing with impact from April 2009 could bring about a distinct benefit to HMRC for their enquiry function into IR35. Contractors often use the Limited Company as a PSC to obtain function either direct from an end client or by way of an agency. The Revenue’s view was that a large number of IT Consultants, Engineers, non-executive directors and “one man band companies” had been often treated as self-employed when in fact they should have been treated as employees of the finish Client. This was based on the conditions and terms that the Contractors worked under. The reality is that HMRC know this as well; furthermore, HMRC will have undertaken background work to establish the principle activity of the company, the company's turnover, details of the directors, dividends received and anything else that they consider relevant. So why, when HMRC already know so much, have they investigated contractors by using the pretense of an Employer Compliance Review? Well, an Employer Compliance Review is not only an excellent opportunity to view current and recent PAYE records, but could also present an opportunity to meet with the director(s) of the enterprise and quiz them in much greater detail than would ever be possible by way of correspondence. It has for that reason been HMRC's approach to write to the contractor and indeed much more recently to make contact by telephone to set up a meeting. The stated aim of the measure was to prevent workers from setting up restricted companies via which they would function efficiently as staff, but saving on tax. The so-called “Friday to Monday” scenario, that it was possible for a worker to leave a job on Friday and return on Monday to be doing the very same function for the same business, but, as a contractor through their own limited organization paying a whole lot less tax, was cited within the press release[2] as the anomaly being corrected. In such a scenario, HM Revenue and Customs would be allowed to “look through” the contractual arrangement between the worker’s firm as well as the client firm and to formulate a “hypothetical contract” which showed that the worker was a “disguised employee”. The fee paid to the worker’s firm would then be taxed as a salary. Normal employment status rules should be applied when considering IR35 status as well as the view of HM Revenue and Customs can be successfully challenged. If these contracts are deemed to be 'outside of IR35' , then take into account insurance to cover the potential liability that may possibly arise.Ultimately you might not be able to stay away from an enquiry but, if one does commence, whatever you do get great representation; this is not a battle that you should consider fighting on your personal.

IR35 is a website set up to present high quality details on the rather esoteric subject matter of employing IR35. Further resources available at IR35 Accountant