Contractors' Questions: Is it worth a second IR35 opinion?

Contractor's Question: What shall I do if a couple of experts who review my contract clash over its implications for me under the IR35 legislation, as I think they might? Separately and once my contract is reviewed, what shall I do next?

Expert's Answer, provided by Kate Cottrell, founder of
Bauer & Cottrell, an IR35 advisory:

Inevitably there will be conflicting views between reviewers but I see little point in going from one to another to get the answer you are looking for. If the reasons for the opinion are properly explained, supported with reasonable interpretation of up to date case law precedent and the reviewers track record of defending cases is good then it is probably not worth paying again. It has to be remembered that IR35 is about the relationship between the individual and the client and we are looking at a hypothetical contract so it is vital that this relationship is reflected in all the contracts in the chain.

Following a review, a contractor should:

• Be in a position to decide if it is even possible to treat this income as outside IR35

• Consider their approach to risk in order to decide whether to operate through a PSC or an umbrella

• If found outside IR35 then to consider risk again when deciding salary levels and/or to consider purchasing tax investigation insurances

• Most importantly if a PSC outside IR35 to undertake due diligence by maintaining appropriate records of the true terms and conditions of the relationship with the client together with ensuring that he has all the badges of a genuine business and maintains them.

• Finally risk-assess again, as IR35 concerns "relevant engagements" so consider having all contracts reviewed. This will be even more important with HMRC's new penalty regime due in April 2009 as it will be necessary to have demonstrated "reasonable care" in order to avoid a penalty.


Wednesday 13th Aug 2008