Please note that major changes to the UK tax system were announced in 2015, which directly affect contractors.
Please see our Contractor Tax Changes webpage for more details.
We operate a full Accounts and Tax service for Contractors.
Our service includes Limited Companies
, Year End Accounts
, Corporation Tax
, VAT Returns
We also make clients aware of Qdos Contract Review
and Insurance Cover
for accounting fees in the event of an IR35 investigation
Our prices are typically from £80 + VAT per month please click
for more details.
IR35 is a UK tax rule which is designed to identify contractors who are paid through an "intermediary" limited company, but in reality the HMRC believes they are effectively employees and therefore should be treated as such for tax purposes.
We recommend that contracts and day-to-day working practices are reviewed by experts, which may also enable the contractor to take out tax investigation and back tax insurance.
IR35 applies to Limited Companies
and Partnerships and does not apply to Sole Traders
Contractors should consider the IR35 implications of their contracts and working practices when providing a service to a single client over a significant period, eg. a year.
It is often legitimate for a contractor to trade through a limited company and be taxed as a normal limited company and outside of IR35.
We recommend that contracts and day-to-day working practices are reviewed by experts, eg. Qdos which may also enable the contractor to take out tax investigation and back tax insurance.
IR35 Check List
When HMRC becomes aware of contract arrangements, they look at the contracts and working arrangements
to determine whether or not the independent contracting situation genuinely exists.
This is a list of some of the issues to consider.
When HMRC examine a contract and working arrangements, they will specifically look at, but not exclusively:
• The time period
of the contract.
• Is the contractor an 'office holder'
of the client company eg. director, including responsibilities such as control over strategy and budgets?
• Is the contractor in a line management position
, including having a senior job title, and has responsibilities of staff supervision, evaluation and direction?
• Is the contractor covered by their own insurance
• Whether the contractor will be able to send someone else if they are unable to get to work, known as substitution
, and whether a substitute has been provided in the past.
• Whether the contractor is required to attend work at specific times
as other employees, or can he/she come and go in their own time.
• Whether the contractor works in their own premises
for some of the time.
• Whether the contractor works independently
with their own skill and expertise, or are regularly controlled, instructed and supervised by the client.
• Is the contractor required to correct errors without pay
• Whether there are specific clothing requirements
, and who pays for these
• Whether the contractor is required to provide his/her own equipment
• Length of notice period
- eg. is it similar to an employee or much shorter?
• How well integrated
the contractor is with other staff, eg. using the canteen and discounted meal prices.
• Was the contractor previously employed by the client
• Whether the day-to-day working practices
and general arrangements confirm the independence of the contractor.
Contracting and IR35 - Other Matters to Consider
Some client companies insist on contractors providing services through a Limited Company
A big advantage of being 'self-employed' rather than 'employed' is that usually you can save some tax and national insurance.
This is why HMRC are keen to ensure that people who are effectively 'employed' are treated and paid as such by the employer - ie. be on the payroll and be taxed under PAYE
Contractors are potentially assessed on a 'contract by contract' basis
rather than their business as a whole.
The easiest way to avoid IR35 is to be a self-employed Sole Trader
. However, HMRC may still be deem you to be employed under other rules.
An alternative to running your own "IR35 Limited Company" is to sign up with an "umbrella company"
where these specialists will look after the tax issues for you, but this service can be expensive.
You would be an employee of the umbrella company.
By contracting through an umbrella company, you would be almost certainly conceding that if you alternatively contracted through an "intermediary" limited company you would be caught by IR35.
The advantage of contracting through an umbrella company is therefore that your remuneration package is taken care of and there are no IR35 concerns.
The disadvantage of the umbrella company is that you would pay a similar amount of tax and national insurance to being an ordinary employee of the client, and also pay relatively high fees.
The other advantage of contracting through an umbrella company is that you could claim 'home to work' travel expenses and subsistence. This tax break will end on 5th April 2016.
GAAR and Penalties
Please note that HMRC have been given more funding to tackle "disguised remuneration schemes".
Under the General Anti-Abuse Rule (GAAR) HMRC may charge penalties, in addition to the historic back-tax, where they decide that a company is an IR35 Personal Service Company (PSC), which had not previously declared itself to be.
More information from HMRC:
A general guide to IR35