Contractors who provide their services through intermediaries, such as their own limited companies, run the risk of unwittingly being caught by IR35 if they’re not careful. This can result in a substantial bill for extra tax from the taxman.
An essential task for any contractor is to avoid an IR35 investigation, below are a few steps you can take to avoid one, making sure IR35 will not apply to you.
Make sure your tax returns are completed correctly and on time, any errors and you could put yourself on HMRC’s radar and arouse inspector’s suspicions that you may be making further mistakes. Hiring an accountant to submit tax paperwork can significantly reduce your chance of being targeted for an investigation.
There’s really no such thing as an IR35 proof contract, but paying for a contract review is essential, when you get your contract, have it professionally reviewed by an expert who can identify any clauses that may be badly worded and could put you inside IR35 from the outset.
You should always operate under “Contract for services” arrangement, as a business to the business service provider through your limited company. If you are named within a contract it may compromise this business relationship and an overzealous HMRC inspector could interpret the working relationship as an employment contract of service.
Keep the client at arm’s length, avoid being on any organisation charts, having business cards, getting any benefits that are normally given to staff, don’t become part of the company furniture so try and avoid becoming part and parcel of the organization.
Hopefully, by following the above and adhering to the IR35 rules you should avoid any costly bills from the taxman.