Why do you need to use the correct IR35 status?
Your IR35 status can have an enormous impact on how much of your contract rate ends up in your pocket. If you’re inside IR35, you have to pay tax as a “disguised employee”, which could leave you paying considerably more tax and NICs than if you were outside. At the same time, working as if you’re outside when you should be inside can be even more expensive. HMRC are increasing enforcement activity in this area and agencies and other intermediaries are required to report details of any contractors they pay gross. If found to be inside IR35 you’ll have to pay any outstanding tax with interest and penalties on top.
If you’re working in the private sector, you are responsible for assessing your own IR35 status and It’s vital to get your status right, and to be able to support that decision with evidence if challenged.
For public sector contracts the public-sector body is responsible for the assessment, but it’s just as important to know what the correct position is, so you can challenge the hirer’s decision if necessary.
Your IR35 status needs to be reviewed for each new contract you undertake, including extensions.
Why not assess your own IR35 status?
Over 15 years of case law has made IR35 a complex and contentious area of legislation. There are a number of factors that need to be taken into account, and different commentators give them different relative importance. According to many, even HMRC’s understanding is flawed. Their Check Employment Status for Tax (CEST) tool which was launched last year as an automated, online service to help hirers and contractors determine IR35 status, has been widely criticised as unfit for purpose. If HMRC can’t get it right, what chance does the average contractor have?
Most contractors have other things to think about and can’t spare the time to become experts in IR35. Given the complex nature of the task and the potential consequences of getting it wrong, it makes sense to seek professional help.
Professional IR35 Reviews
A professional IR35 review will involve a specialist assessment of your contract and working practices, to determine whether you’re working inside or outside IR35. It’s important to assess both; even if your contract is “IR35 friendly” you’ll still be caught if the way you work puts you inside IR35.
As well as providing expert advice on your IR35 status, the review will tell you the reasons for the recommendation, and if necessary advice on how your status can be changed; for example, the reviewer may advise amendments to the contract, or point to working practices that could be changed.
If your IR35 status is challenged by HMRC, a professional review will provide you with evidence to support your decision. The reviewer may also be able to offer advice and assistance in dealing with HMRC, and even represent you at tribunal if the need arises.
Where to go for help
Orange Genie Accountancy work in partnership with leading IR35 specialists Bauer and Cottrell, to provide you with the very best advice. Bauer and Cottrell have an excellent reputation for IR35 compliance, and can provide complete support, from a quick sense check to a full contract review.
