It is now 16 years since “IR35” first crept onto the statute book so we thought it time ‘to re-examine this. When it was first introduced it was thought that might herald the end of the “one-man” limited company, but it has proven to be less ferocious than originally feared. However, it is beginning to rear its head again.
So what is IR35 and might it affect you? IR35 applies to “personal service” companies. Therefore, the first thing to say is that if the company supplies some form of physical product then IR35 cannot apply. Similarly, if the company provides the service of persons other than the proprietor (s) then IR35 cannot apply overall, although it may apply to certain contracts into which the company enters (IR35 has to be looked at on a contract by contract basis). For IR35 to apply then the product supplied to the customer must consist solely of the service of the proprietor.
However, even if the supply consists solely of the proprietor’s services then IR35 may not apply. The second stage in applying IR35 consists of the introduction of a “notional contract”. When a “personal service” is provided by a “worker” to a “client” through a company then that company is acting as an “intermediary”. Similarly, that company may obtain its contracts through an employment agency. In that case the agency is also acting as an “intermediary”. The legal contracts are between the “client” and an “intermediary”, and then perhaps between “intermediaries” before finally being between an “intermediary” and the “worker”. IR35 ignores these legal contracts and, instead, replaces them with a “notional contract” between the “client” and the “worker”. If that non-existent “notional contract” would be a “contract of employment” if it existed then IR35 applies to the transaction formed by that series of contracts.
You may have found the above complex to understand, but interpreting it has proven to be infinitely more difficult. Some people have had their lives blighted for several years whilst their case has gone from one level of tribunal to another and eventually to the Supreme Court, only for the court to then decide that IR35 did not apply. This is not the fault of the tax office. It is the fault of the politicians who have tried to tackle this perceived problem by introducing fairy tales into contract law.
If you are concerned that you might be caught by IR35 then help is at hand. Abbey Tax are a leading provider of taxation assistance and advice. They offer a contract review service at a cost of £249 plus VAT. If you are a client of WatkinsonBlack then this is reduced to £185 plus VAT.
WatkinsonBlack are pleased to advise on these and other matters. They have considerable experience in these and other matters, including providing a very cost-effective payroll bureau service. If you want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us. Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.
