How to avoid IR35 - an updated guide for contractors
A leading adviser on employment status has updated her exclusive guidance for ContractorUK on how contractors can avoid IR35, in light of recent administrative and statutory reforms to the ‘deemed employment’ legislation.
Kate Cottrell, of status advisers Bauer & Cottrell, says that although the Intermediaries legislation of 1999 still seeks to tax ‘disguised employment’ at a similar rate to employment, the IR35 landscape for contractors has evolved in three ways.
Firstly, in December 2012 the government unveiled a new clause with effect from April 2013 that, for income tax purposes, extends IR35 to limited company contractors who perform an ‘Office Holder’ role of a client-organisation.
Earlier in 2012 - in August, an ‘action note’ from the state instructed all central departments (including their agencies and non-departmental bodies) to obtain formal assurance from contractors that they were outside IR35. This assurance process is now in force.
Thirdly, in May 2012, HM Revenue & Customs unveiled new IR35 guidance in the shape of six new IR35 scenarios and a 12-point Business Entity Test(s) (Editor's Note: As of Oct 2014, both the scenarios and tests have been withdrawn), which contractors can now use to help gauge their risk level for investigation under IR35.
Cottrell, a former Revenue inspector reflected: “Also since May of last year, there are three new HMRC IR35 specialist teams; a large increase in IR35 investigations and an improved IR35 helpline service.”
But what remains the same are the steps she recommends contractors take to mitigate their exposure to IR35. These include acting like a business, collecting ‘badges of business’ and reviewing written contracts to ensure they reflect the working reality.
“There is lots of IR35 help, advice and support freely available, so take it and do not listen to those who just say ignore IR35,” the advisor warns. “The risks are too great.”
Download ContractorUK’s 2-minute guide – How to Avoid IR35, by Kate Cottrell, here.
Editor's Note: Further Reading in light of the Business Entity Tests being axed --
Public sector contractors get new IR35 guide
HMRC hands contractors IR35 scenarios on SDC