IR35 was first introduced in April 2000 and is also known as the Intermediaries Legislation. To explain it simply, it’s used to determine your status as a contractor or freelancer and the way your income should be taxed.
Self-employment or direct employment is determined by the working relationship and terms and conditions agreed between the parties involved. It also depends on how modern case law interprets those conditions.
Once you understand the case law, it is a matter of entering into a genuine commercial business to business relationship. Remember that it is important to consider the case law precedents that define self-employment. You do not want to be classed as a disguised employee by HMRC.
It is not easy to ensure that IR35 does not apply to you. Sham contracts do not work and they will never defeat IR35.
The main focus in an IR35 investigation is the contract. If the contract is strong and a true reflection of your working arrangements, HMRC would find it difficult to claim that you are a disguised employee. That’s why it’s so important to make sure you have the best possible terms in your contract.
The contractual terms of your working relationship should reflect criteria which the courts have accepted as demonstrating self-employment. You should operate in a true business to business manner demonstrating a commercial approach.
Other factors would only be taken into account if the contract is not clear. These factors could include the intention of the parties, financial risk, non-exclusivity, employment style benefits and provision of equipment.
Having an IR35 review on your contract will not reduce the risk of a HMRC investigation. However, it does demonstrate due diligence and so could reduce or remove the risk of any subsequent penalties.
Simplyco are expert contractor accountants and offer a complete IR35 contract review service. To enquire about this service or any of our other services, please give us a call on 01900 898 440 or email firstname.lastname@example.org.
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