IR35 is the tax law that looks into 'disguised employments’. It is the term HMRC use where a service agreement exits between 2 parties the substance of which is an employment arrangement but which is not being treated as such by the employer resulting in an underpayment of Tax.
In such situations HMRC will assess the employer for PAYE & National Insurance and has the power to go back up to 6 years.
In order to avoid this eventuality it is essential to have a well drafted contract which must reflect the arrangement. This is something we can advise on.
HMRC give general advice Indications that a worker is self-employed
If any of these statements applies, your worker is likely to be self-employed.
• They can hire someone else to do the work you've given them, or take on helpers at their own expense.
• They can decide where to provide their services, as well as when and how to do the work you've given them.
• You pay them an agreed fixed price - it doesn't depend on how long the job takes to finish.
• They can make a loss or a profit
However there are recent case law which goes beyond this, cases such as 'Castle Construction v HMRC' amongst others. One will need to consider mutuality of obligations, the right to provide a substitute, insurance and use of own equipment amongst other things.
If you are thinking of setting up an 'umbrella' company or any self employed contract arrangement it is best you seek professional tax advice first as HMRC are constantly looking into this type of agreement.
If you would like us to take a look at your existing contract or need help with a new set up please get in touch for further information. mitch@ljd.uk.com
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