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Surviving IR35 - Step 1

By: Antony..

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.

Obviously, people have not liked this, especially freelancers who frequently take considerable risks in their business. Almost all freelancers are self employed, and so can easily be caught out by this new tax. A contract that is well phrased and clear will be fine, but the smallest mistake in word choice can be enough to sink you.

The simplest and safest solution is to have all contracts reviewed by an IR35 expert before signing. There are many review providers and the average price is around 120. Given that the review could result in a tax saving of tens of thousands of pounds in an IR35 enquiry, it is a false economy to put off getting a review.

Here are some of the things that IR35 experts check when they review contracts for IR35 status:

1. Does your company bear the financial risks of failure? [Yes = Good]

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

3. Does your company have the right to send alternative personnel? [Yes = Good]

4. Is your company responsible for any bad debts? [Yes = Good]

5. Does your contract read "Contract for services" as opposed to "Service contract"? [Yes = Good]

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

7. Are you an d your client related as if you were "master and servant"? [no = Good]

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

If you are a freelancer, working from the UK, and everythign listed above checks out for you, then you are likely to be fine in the event of an investigation. However, be careful. It's not just what your contract says that matters, but also how it is written. IR35 investigators look very closely at the precise wording of contracts, so you need to be sure you use exactly the right phrase.

Thus, the first thing that you need to do is to have your contract reviewed by a professional IR35 contract reviewer. An expert should be able to give you some good advice about any parts of the contract that need to be changed. If you do need to change something, then make sure you get it changed before you sign!

Article Source: http://add-articles.com

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

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