IR35 Compliance
How you can stay away from an IR35 Investigation. You can find no guarantees, but one extremely great guiding principle is to ‘Get your defense in place now’. Avoid setting up businesses with £2 or £100 share capital; contemplate issuing £1,000 worth of share capital - it suggests a more ’substantial company’. Think about the level of salary/dividends paid; don’t make oneself a target for a Status Inspector looking to maximize the tax potential for HMRC.
The statement was basically seeking to clampdown on these so-called one-person services businesses. That is, individuals who, while ostensibly acting as staff of a company, stay away from PAYE by instead charging for their services under a contract. Under the rules, a contractual worker falls under IR35 if he or she (the ‘worker’) works for a client but does not invoice the client directly for work carried out, instead: the client contracts an intermediary company, which then efficiently employs the worker. It really is easier for the client - if dissatisfied - to dispense using the services of the intermediary than it could be if it employed the worker directly. The client also avoids PAYE or NI tax issues; the intermediary company, in which the worker has at least a 5%beneficiary interest, then invoices the client for the worker’s efforts; the worker takes their earnings within the form of a dividend (a distribution of net profits of the company to its shareholders) on which NIC aren’t paid. IR35 Advice
The Revenue argued that if the agency or the PSC had been removed, a large number of contractors would really be “disguised employees” who should be included on the client payroll and have tax and NIC deducted each month. The Government announced the “rule changes” which would take effect from 6 April 2000. The first reporting and payments could be due from 19 April 2001.
Unfortunately, not all contractors are aware that they are under no obligation to meet with HMRC and, as yet, HMRC cannot insist on visiting the business premises. Nevertheless, we nonetheless hear the odd horror story of a contractor meeting with HMRC who guess at answers, say what they think the Inspector wants to hear, or feel pressured into giving a certain answer after which to compound matters, sign the notes of the meeting - leaving themselves with nowhere to go if they subsequently wish to dispute anything that was said. IR35 Compliant.
If these contracts are deemed to be ‘outside of IR35′ , then contemplate insurance to cover the potential liability that could arise.Ultimately you could 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 contemplate fighting on your own. ZwanzlfrastIR36.