• Malcolm Swallow

IR35 rules changes

Updated: 7 days ago

Many people new to Contracting find the IR35 rules difficult to grasp. This is a common situation as the rules are deliberately vague and imprecise.


Broadly they revolve around having only one customer for small companies. Our detailed notes are available for download.


However most small companies decide for themselves that they are outside ir35, and support this by some of the secondary indicators such as control of daily work schedule, relationship with 'employer'. They take this decision due to the tax advantages gained through income drawn mostly as dividends and thereby free of NIC taxes.


The BIG change that started in April 2021 is that the initial IR35 assessment to decide if you are caught is now made by the PAYER, not recipient. The reason for this is simple- HMRC have moved the penalties liability further up the food chain so are more likely to get the massive amounts of extra tax/fines from richer payers. This means that many agencies are now changing their attitude to IR35 as they are often in the billing chain, and are not keen on being enmeshed in this.

There are exemptions for smaller 'employers':-

The rules apply to all public sector clients and private sector companies that meet 2 or more of the following conditions:

  • you have an annual turnover of more than £10.2 million

  • you have a balance sheet total of more than £5.1 million

  • you have more than 50 employees


We recommend that the annual accounts of small companies resemble those that a small trading company might submit, importantly including a paye-taxed salary  at a reasonable level. We suggest at least monthly £1,500 for anyone, but ideally £2,000 for higher paid contractors. And any opportunities for extra work for other customers, even one-off projects, will help you maintain your outside ir35 status.


Also when claiming expenses from your company these should be at a sensible level for the type of company. For instance if large restaurant bills, especially with generous amounts of alcohol, are claimed as 'meeting expenses' or 'subsistence' HMRC are likely to challenge the accounts by investigating expenses.

Our clients always get knowledgeable support on this tricky topic, and we have a consistent track record of very few enquiries into our clients accounts, but at the end of the day the decisions are yours as it's your company.


Please read the briefing here.



tech116 ir35guide
.pdf
Download PDF • 397KB


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