IR35 – New guidance

Jul 5, 2012

By Paul Croombs

IR35 is legislation that ensures people who are deemed employees have to pay PAYE and National Insurance on their drawings from their company as if they were employed.  It therefore stops some people from benefiting from paying themselves dividends through their own limited company.

Please note that the legislation has not changed so if you were previously outside the scope then you will continue to be so.

The new guidance sets out a “Business Entity Test”  that will show how at risk you and your business are of an IR35 review and if subject to review, what you may need to provide to justify your being outside the scope of IR35.

Interestingly the new guidance doesn’t seem to look at the number of contracts a business is providing as being a key indicator.

The HMRC business entity test is designed to return a score that will tell you if you are at a high, medium or low risk of an HMRC IR35 review.

There has been some hinting from the Revenue that they may be writing to businesses they think would be at medium or high risk of an investigation to ask if they have considered IR35.  It is then up to you to show you are at a low risk or provide additional information for HMRC to make their own decision.

Clearly being subject to a potential HMRC review will worry a high number of people and early indicators are that a high number of contractors working through their own limited company may switch to working through an umbrella company as this is outside the scope of IR35.  If you would like to discuss this in more detail please call us.

A couple of questions that they Revenue will be asking in their “test” are;

  • Do you get paid the same amount of money whether or not you finish your job early?
  • Were you employed by the end client within the last year?
  • Is there a right of substitution in the contract and if so have you had to enforce it?

If you would like to see the other questions the Revenue have visit our website and please feel free to contact us to see how all of this may affect you and your business.

If you would like further advice on how we can help your business, please call us for a free, no obligation meeting.

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