How to avoid IR35: 10 simple tips
With the controversial tax change IR35 being delayed to 2021, contractors and businesses that hire them now have time to take steps to avoid being caught by IR35.
What is IR35?
IR35 (off-payroll working) is being implemented to prevent contractors from avoiding tax when they are really employees. For example, if a contractor operates as a limited company , but is treated as a normal employee, they are deemed to be ‘inside IR35’ and will be required to make additional tax payments.
Taking different measures to avoid an IR35 investigation is essential for all contractors. So here are 10 tips that you can follow so that IR35 won’t apply to you;
1. Don’t attract HMRC’s attention
Avoid late tax returns: Submitting your tax return late, or making errors on the return, will draw attention to yourself from HMRC and could make them suspicious of you making other mistakes.
Hire an accountant: Hiring an accountant to sort your tax paperwork can significantly reduce your chances of being investigated by HMRC.
2. Avoid replacing an employee
You should start a contract role with the understanding that the role has been created for a contractor.
If the contract is to fill a role that was previously filled by an employee, the client is likely to expect the worker to perform like an employee. This increases your risk of being caught by IR35.
3. Get a contract review
Although there is no such thing as an IR35-proof contract, it is still essential to get a contract review.
After receiving your contract, we highly recommend having it reviewed by a professional. They will be able to identify any sections that could put you inside IR35 from the off.
4. Make sure you are not named in the contract
In your contract, you should always operate as a business-to-business service provider, through your limited company.
Being named in the contract could compromise your business relationship, and an HMRC inspector may have suspicions that your business relationship, is actually an employment ‘contract of service’.
5. Agree a ‘confirmation of arrangements’ with the client
The ideal scenario is that your contract will clearly show that you’re outside of IR35, but that is not always the case. Ask for a ‘confirmation of arrangements’ form from the client, that confirms that your relationship is a business-to-business one.
6. Keep a contractor diary
If you do find yourself on the taxman’s radar, the HMRC may conduct reviews of your previous contracts.
Keep records of your phone logs and copies of your emails, so that you have proof of your day-to-day working arrangements if the taxman does come knocking.
7. Be in control of yourself
There is a few different tests HMRC use to determine whether you are a...