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IR35 business tests

IR35 business tests: are you compliant?IR35 business tests: are you compliant?

If you are a contractor or freelancer, chances are you have heard the term “IR35” and wondered what it meant.  Here is a quick answer and also how you can improve your status.

What is IR35 and what does it mean for contractors and freelancers?

In April 2000 the government introduced the IR35 legislation.  Its intention is to tackle contractors who HMRC believe should be employees.  However, these contractors operate “one person” limited companies (known as personal service companies), which allow them to make huge tax and NIC savings.

What are the IR35 business tests?

    • Business premises – do you have your own office space?
    • Insurance – do you have professional indemnity insurance to cover your work against any claims?
    • Efficiency – have you had efficiency improvements that have meant more revenue and profit?
    • Assistance – do you have any workers bringing in 25% or more turnover?
    • Advertising – have you spent more than £1,200 on advertising in a year?
    • Previous PAYE – have you previously been an employee of the client?
    • Business plan – do you regularly make business plans?
    • Repair at own expense – do you have to rectify any mistakes in your work?
    • Client risk – have you had any significant bad debts?
    • Billing – do you always bill before getting paid?
    • Right of Substitution – do you have a right to use a substitute to carry out the work?
    • Actual Substitution – have you actually had employees?

What can happen if you are “inside” IR35?

If HMRC deem your contract falls inside IR35, they will calculate a “deemed payment”, which treats your company’s entire turnover as salary and require you pay the tax that you have saved by operating a limited company.  They can go back six years.

What can I do to improve my IR35 status?

Most contractors are not employees and are truly independent operating “outside” IR35, although, they can have a hard time proving this to HMRC.  It is vitally important you have help from a specialist IR35 reviewer, who has experience of thousands of contractors just like you. They will be well versed with all the IR35 legislation.

In the event of an investigation, HMRC will not only look at your contact, but very importantly, they will look at your actual work practices.  You need to make sure that both of these aspects show that you are outside IR35.

Rest assured >>Nimble Jack Accounting are IR35 accountants who have in depth knowledge of the IR35 tests. We work with leading IR35 specialists, who can perform a fully comprehensive contract and working practices review and give you a full report with recommended changes if required.

Any questions? Speak to one of our friendly accountants on 020 7969 2879.

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About Hardeep Mangat

Hardeep is a down to earth accountant, who loves helping contractors, freelancers and small businesses save tax and make more profit. He also has a particular interest in IR35 . Hardeep attended University College London and is a Chartered Certified Accountant, who previously worked for Credit Suisse Investment bank and at a local accountancy practice.

Hardeep on Linkedin and Google+


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