IR35

System · October 2005

Can anyone clarify the concept of IR35, and how it affects sub contractors, one man limited companies, and long term relationships between the self employed and their clients. Many people using this forum aspire to run their own business "doing books" for clients. This involves regular work for a small group of clients, and for the sake of convenience to both parties it is likely that the work will be at a fixed (although mutually convenient) time and of similar duration on a regular basis. At what point does agreed mutual habit become expectiation and therefore tip towards the master/servant relationship? The work might be carried out at the client's offices, which means the AAT member will probably not be using his/her own computer equipment. Then what happens if the successful MAAT, with more work than he/she can cope with, appoints someone else to take on some of the work. The MAAT might conceivably decide to set up as a limited company at a time when their business is growing and personal financial exposure to risk needs to be limited. Any thoughts, and expert knowledge and opinions welcomed.

System · November 2005

IR35

Hi Not sure if this is the kind of thing that will help but we run a small family courier firm and up until last year all our drivers were sub contractors. During a routine payroll inspection for the office staff on our books the I.R (god bles them) deemed all drivers fully employable, basically it boiled down to them using our equipment, being here on a regular basis and carrying out work we asked them to do!! this seems bizarre when you think that they worked when they liked! This is very similar to the scenario you created in your question, there is no real answer and my advice to you would be to carry out work for as many clients as you can, using your own equipment and from your own office/home, that way if they (the client) are ever checked via I.R you can prove you have a client portfolio and your own office, good luck with the work

System · November 2005

IR35

Hi Sheelagh, IR35 was set up by the Inland Revenue to stop sub contractors being paid for their services through a company when they were in fact working on long term contracts for the contractor and could in reality be an employee of the contractor. For Example: Joe Bloggs sets up a company called Taxi Vasion and sub contracts to Dukers & Dyvers, the contract is a long term contract and Joe Bloggs being a sole trader spends all his time working on the contract. Every Month Dukers & Dyvers pays Taxi Vasion the invoiced amount and Taxi Vasion pays Joe a Salary. If Joe is paid the Tax free allowance as salary and then a dividend he will only pay tax at the rate of 10% and would not have to pay any NIC's. To stop this the Inland Revenue thought up IR35, This means that all the money that has been paid to Taxi Vasion by Dukers & Dyvers for the work done by Joe is Deemed to have been paid to Joe and is taxable at the prevailing rates. To get to the Deemed Payment you add all the money that has been paid then deduct salary, any NIC's that may have been paid, etc. This would only affect sub contractors that were on long contracts for a specific company and did not do any work for other companies, it would not affect accountants, solicitors etc because they work for a number of different clients and are not exclusive to one client. If you wanted to sub contract some of your work then as long as the person you sub contract to has other clients they will not come under IR35. Terry

System · November 2005

IR35

IR35 has always been a minefield and will continue to be so - at the moment the Revenue are after agency nurses, and it is the turn of the construction industry next, although that has been deferred for 12 months to April 07. Doing someone's books, payroll etc could always be investigated by the Revenue - the work is regular etc, but i have never had a problem (tho' never been investigated!), and i could prove that i have over 50 clients, all with very different needs in terms of experience, workload etc. The only one that i might have a problem with takes up about 1.5 days per week, and i am his entire accounting process - wages, payroll, invoicing, VAT etc etc, and it could be deemed that i am an essential part of his company - do have to work to his deadlines - ie running the payroll every week - but i would still fight tooth and nail to say that i am genuinely s/e even for him. A lot of people have set up ltd companies as a supposed way round IR35 - i dont think that the revenue would treat a company as any different to a normal s/e person - unless perhaps they had genuine employees working for them - not just the Mrs as a co secretary. PS - non corporate dividends are taxed at 19% not 10% - ie dividends paid to a person not another company, so large part of that tax incentive has been taken away.

System · November 2005

IR35

Hello Ballooncrew, Thank you for such a comprehensive reply. Does it relevant whether Taxi Vasion is a limited company or not? If Joe Bloggs had remained a sole trader, his tax and NI would have been the same, but Dukers would be saving employer's NI. Is this part of the IR35 issue?

IR35

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