IR35 RulesSource: | | 24/02/2017
IR35- How to stay outside scope
Most contractors will have heard of the IR35 legislation. Many sole director companies run the risk of their contracts being deemed to fall within the legislation. This in turn will means that the company income from contracts will be taxed as though they were an employee and will be subject to both income tax and national insurance.
There is a provision for expenses of 5% of a contractor's turnover and the following expenses can therefore be claimed in addition to the 5% allowance:
- Pension payments - either personal or executive schemes
- Business travel - incurred in the course of business duties
- Subsistence - accommodation, meals when away from home
- Professional Indemnity cover
- Benefits in kind - e.g. private medical insurance
It should be noted that training expenses will not form part of this allowance
There are several indicators for a contractor staying outside of IR35,that should be documented in the contract between your company and the end client or agency:
- Work under your own direction and control
- Have the right to appoint a substitute, if you are unavailable
- Being responsible for any rectification work at your own cost
- No rights to holiday/sickness or redundancy pay
- Be responsible for reporting and paying own taxes and insurance
- Have more than one income source
- Being paid for work done and not at a fixed rate per week/month.
This is a very difficult area but one very much in the news. If you are a contractor do keep in touch with us regarding your contracts, so we can either take measures to avoid IR35 or accept being inside the scope and accounting for tax and NI accordingly.