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Contractors Handbook


IR35 Contents:

^ TopWhat is IR35?

What is IR35? When IR35 applies to contracts explained
IR35 is tax avoidance legislation designed to ensure workers using an intermediary but who are ‘disguised employees’ pay the correct amount of tax.

IR35 history & overview
A timeline and oveview of the IR35 legislation since it was introduced in April 2000.

When should contractors start considering IR35?
Advice and guidance for when to start addressing the IR35 issues.

What is a disguised employee?
Limited company contractors will find themselves labelled as ‘disguised employees’ and inside IR35 if they pass the tests of employment.

^ TopFinancial Impact of IR35?

Financial impact of IR35 on contractors
A contractors take home pay is reduced by up to 25% when caught by IR35.

Contractors inside IR35 pay 14% more tax than permanent employees
Limited company contractors inside IR35 being paid via a deemed payment will pay 14% more tax than a permanent employee, but get no rights in return.

The IR35 5% expenses rule
Explains the Inland Revenue 5% expense rule for contractors caught by IR35.

Limited company contractors with contracts inside and outside IR35
Having contracts both inside and outside IR35 need not be complicated for limited company contractors to deal with, says Phil Richards of BFCA.

IR35 penalties: the cost to contractors of being caught inside IR35
Contractors working on contracts inside IR35 must pay extra tax and, if caught inside IR35 without declaring it, face steep IR35 penalties from HMRC.

^ TopEvaluating your status

IR35 Rules: How to determine if your contract passes IR35
Contractors signing a contract without checking whether it passes IR35 are taking a huge risk. Here’s what to look for before signing the contract.

The importance of taking legal advice for IR35 compliance
Explains why it is important to seek legal advice for IR35 compliance.

IR35 contract problems: Top 10 reasons a contractor’s contract will fail IR35
Contractor contracts are vital evidence that can be used by HMRC to place a contract inside IR35. Don’t let your contract fail IR35 and cost you cash.

Reviewing your contract for IR35 status – a guide for contractors
Contractors should always get their contracts reviewed for IR35 status by an expert, to ensure they have taken ‘reasonable care’ in the eyes of HMRC.

Contractor guidance on HMRC’s six IR35 example scenarios
Limited company contractors can use HMRC’s six IR35 example scenarios to help them decide whether IR35 is likely to apply to their current contract.

If the client requests me personally, am I caught by IR35?
Many contractors who are the leaders in their field find themselves working for clients who will accept no substitutes. But this does not mean that the contractor is within IR35.

Landmark tribunal judgement tells us who is an employee
The UK Employment Appeal Tribunal in London has handed down a critical decision on the definition of a worker--it directly affects contractors who could be considered employees.

Does length or number of contracts affect IR35 status?
Does how long you work at a place, or the fact that you have several different contracts affect your IR35 status?

IR35 myths: 10 factors that don’t really affect your IR35 contracting status
Contractors are right to be concerned about IR35, but are sometimes misinformed. Seb Maley from Qdos exposes the top ten contracting myths about IR35.

Half my contract is onsite and half at home – am I caught by IR35?
Significant variations during a contractor’s contract can lead to different treatment under IR35, explains Bauer and Cottrell’s Kate Cottrell.

Independent contractors – what are they? Employed or self employed?
Independent contractors are workers who are in business on their own account & provide their expert services to clients under a contract for services.

I’ve been outside IR35 and now think I’m caught. What should I do?
Contractors experiencing a sudden change of circumstances mid-way through a contract may find this alters their IR35 status and hits their finances.

IR35 applies to office holders unless there is no personal service
IR35 will apply to any contractor who becomes an office holder unless they can prove that personal service is not required, says Andy Vessey of Qdos.

Contractor guide on when IR35 will apply to overseas contracts
Contractors domiciled in the UK and working on overseas contracts will find that IR35 still applies in most cases, explains Andy Vessey of Qdos.

^ TopIR35 Business Entity Tests

IR35 Business Entity Test for contractors – process and questions
Contractors can help determine their level of IR35 risk by taking HMRC’s business entity tests, answering 12 questions about their business.

Contractor guidance on HMRC’s risk-based approach to IR35 & the business entity tests
Limited company contractors can use HMRC’s business entity tests to gauge their IR35 risk, which could lead to 3 years of IR35-free contracting.

^ TopPublic sector off-payroll rules

Contractor guide to the UK public sector off-payroll rules
From September 2012 contractors with public sector contracts may have to demonstrate to their clients that the off-payroll rules don’t apply to them.

^ TopContracts & IR35

IR35 Explained: ‘Contract of service’ and ‘contract for services’
In addition to defining IR35 status, contracts ‘of service’ and ‘for services’ bring rights and responsibilities for contractors and employees.

How contractors should word contracts to keep outside IR35
Contractors should carefully word contracts avoiding terms used by employers and remain outside IR35. This article shows how.

IR35 danger: when your contract is different from the agency-client contract
HMRC always obtains the agency-client contract and compares it with the contractor contract. They rarely agree, and this spells IR35 trouble.

Negotiating your contract for IR35 compliance
If you have been offered a contract which is caught by IR35, or are in a contract that is caught by IR35 you’ll need to consider negotiating changes to get it outside IR35. This explains how.

Contractors need the IR35 confirmation letter
Getting a confirmation of terms letter from the client could save you endless trouble and expense if you need to prove that you are outside IR35.

Covering letters persuading clients to sign an IR35 confirmation of arrangements
Contractors facing challenges securing a signed confirmation of arrangements from a client may find a well-structured covering letter does the job.

Contracts alone won’t protect contractors from IR35
Former tax inspector Carl Whittaker from Qdos Consulting talks to ContractorCalculator about his experience of debating notional contracts with HMRC.

Contractors staying outside IR35: setting expectations with a letter to the client
A contractor’s covering letter sent with a confirmation of arrangements to a client manages expectations about IR35, explains Andy Vessey of Qdos.

IR35 - a contractor's best defence starts before signing the contract
Contractors who undergo IR35 investigations by HMRC can suffer years of financial and personal stress before their case is resolved. Being prepared will ensure any HMRC attack is swiftly resolved.

Contracting termination clauses that avoid IR35 risk
The termination clause in a contract can result in an IR35 ruling going either way, according to Andy Vessey of Qdos Consulting.

Getting an IR35 free contract and passing IR35
Practical advice about how to negotiate an IR35 free contract with your agent.

Advice on buying an IR35 free contract
Is it worth spending money on buying an 'IR35 Free Contract' ?

Can I change contract terms to be outside IR35 during a contract?
Changing contract terms to be outside IR35 during an existing contract.

IR35 legal dangers of the standard agency contract
John Antell describes the dangers involved with standard agency contracts and explains what to look out for.

What contractors need to know about IR35 compliant contracts
Contractors need to understand that no contract can in itself remove the threat of IR35 evaluation from the Revenue. But there are some contract clauses that can help you stay outside.

IR35 contracts, agencies and issues
Examination of the grey areas between client, agent and contractor.

IR35 negotiations - use employment rights to gain client cooperation
Contractors can use the threat of claiming employment rights as a bargaining chip with clients following two key rulings, says Andy Vessey of Qdos.

^ TopAvoiding IR35

Can your accountant keep you outside of IR35?
Contractors should hire specialist accountants who can ensure they are taking all necessary steps to stay outside IR35, says Intouch’s Duncan Strike.

Prove your contract is outside IR35 by collecting key evidence
Contractors generate evidence about IR35 every day and by filing it they could halt an HMRC review at the outset, says Qdos Consulting’s Andy Vessey.

How contractors should prove being outside IR35
Contractors should arrange to obtain and to keep certain documents to prove, as best as one can, that they are outside IR35.

IR35 - Top 10 traps to catch the unwary contractor
HMRC is always on the lookout for contractors who put themselves inside IR35 by making easily avoidable mistakes. Here are the top ten traps to avoid.

Can contractors using umbrella companies be caught by IR35?
Does working for an umbrella company enable you to avoid IR35?

International contracting and IR35
Where you pay taxes determines whether or not you have to worry about IR35 if you are contracting abroad. If you pay in the UK, then you have to worry.

Protect your contracting status by building an IR35 compliance file
Contractors who create and maintain IR35 compliance files can rest assured they will be able to prove their IR35 status when HMRC comes to call.

Contractor strategies for long term IR35 defence
Contractors can be taking action now to help build future IR35 defences as Duncan Strike of Quay Accounting explains.

IR35 avoidance: Staying outside IR35 if you go contracting for your former employer
When contracting for a former employer, contractors must prove their new relationship is different to avoid IR35, says IR35 specialist Kate Cottrell.

Contractors must demonstrate business risk as part of keeping contracts outside IR35
Demonstrating business risk can show a contractor as ‘being in business’, thereby helping the case for being outside IR35, says Andy Vessey of Qdos.

IR35 and contracting bonuses – how to manage bonus payments to avoid IR35
To avoid IR35, contractors must adopt the correct terminology when agreeing to performance-based bonuses for a project, explains Andy Vessey of Qdos.

IR35 issues for project managers working as contractors
Project managers can stay outside IR35 as long as they have no line management responsibilities, explains Bauer & Cottrell’s Kate Cottrell.

Keeping control keeps IR35 away from contractors
To stay outside IR35, contractors should ensure they are not under the supervision, direction and control of their clients, notes Qdos’ Andy Vessey.

Contracting top 10: Making sure IR35 won’t apply to you
HMRC is constantly on the lookout for ‘disguised employees’. Here are ten precautions contractors can take to ensure they don’t get caught by IR35.

^ TopIR35 & Substitution

If my client lets me substitute purely for IR35, would it count?
Contractors using a substitute could enjoy 3 years of IR35-free contracting, according to HMRC’s business entity tests, says Roger Sinclair of Egos.

Contractors can avoid IR35 by using substitutes, subcontractors and helpers
Contractors can use other workers to help fulfil contracts and thereby prove those contracts are outside IR35, says Andy Vessey of Qdos.

Put yourself outside IR35 by bringing in expert help
Contractors can apply simple strategies to add weight to their IR35 status by employing expert sub-contractors to work on their contracts.

IR35 and the right of substitution: convincing clients to accept the clause
To avoid being caught by IR35 a Right of Substitution clause can be a key factor. But, how do you convince the client or agency to include one?

Contractors should use right of substitution in contracts
It’s wise for contractors to have a Right of Substitution clause in contracts to help remain outside IR35. But make sure it’s phrased properly and don’t rely only on the clause alone.

IR35 and substitution: substituting twice a year could save contractors thousands
Mounting evidence suggests that a contractor’s genuine right of substitution, if exercised, is the key IR35 status factor outweighing all others.

Contractor guide to using substitution to stay outside IR35
Contractors who are able to make unfettered substitutions that do not require agreement from the client can use substitution to stay outside IR35.

^ TopWorking conditions

Why can't I use the company canteen?
Contractors can't expect to use the company canteen or to enjoy other employee rights because they risk falling inside IR35. Even small things like this can be important to the Revenue when considering your case.

Being "in business on your own account" is key for contractors to stay outside IR35
Contractors able to show they are in business on their own account are on their way to staying outside of IR35. As Carl Whittaker from Qdos explains, the objective is to prove you are not 'part and parcel'.

Contractors must not be 'part and parcel' of clients to avoid IR35
One of the tests used to prove employment status under IR35 is being 'part and parcel' of an organisation. Contractors should avoid this at all cost.

^ TopMitigating IR35 Taxes

Reducing the IR35 pain with a contractor pension
Reduce the pain of IR35 by diverting your IR35 taxes into a pension and achieve up to 48% tax relief.

Umbrella companies and IR35
Explains the umbrella options with respect to IR35, and whether IR35 can be avoided using an umbrella scheme.

Dealing with multiple contracts being inside and outside IR35
Accounting requirements when you have contracts both inside and outside IR35.

^ TopLegal Points

Contractor guide to Mutuality of obligation (MOO) and IR35
Mutuality of obligation is one of the key factors used by a court or tribunal to determine whether IR35 applies and a contractor’s employment status.

Contractors caught by IR35 who believe the agent was at fault have few grounds to sue
Contractors may blame their agent for landing them with a contract inside IR35, but Roger Sinclair from Egos says they have few legal options.

Contractor guide to IR35 case law
Case law is fundamental to the workings of the UK legal system and is often used to determine whether a contractor is inside or outside of IR35.

^ TopIR35 & employment rights

Should contractors inside IR35 have employment rights?
Contractors inside IR35 are taxed like employees, yet they have no employee rights unless they go to court to claim them. An unfair situation that the Government should resolve.

Why contractors caught by IR35 cannot necessarily claim employment rights
Roger Sinclair of Egos dashes the hopes of contractors caught by IR35 claiming employment rights from their clients.

^ TopHMRC Advice

Contractor guide to HMRC’s IR35 contract review service
Contractors can ask HMRC to review their contract, but this could increase the risk of an IR35 enquiry, particularly if the contract is borderline.

Contractors can use HMRC's employment status resources to help with IR35 status
HMRC’s online manuals for tax inspectors’ use provide contractors with insights into how not to be seen as an employee and how to stay outside IR35.

HMRC IR35 information and advice - a guide for contractors
Contractors can access IR35 information, guidance & advice online and by phone from HMRC, but it comes with a health warning as there are grey areas.

^ TopHMRC Investigations

What triggers an HMRC IR35 investigation?
Contractors will find that a range of factors could trigger an IR35 review, and the days of a random inspection are long gone, says Qdos’ Andy Vessey.

How to avoid an IR35 investigation
Contractors can adopt a range of strategies to reduce the risk of an HMRC IR35 investigation, explains Andy Vessey of Qdos Consulting.

IR35 reviews by HMRC: how they work
Contractors undergoing an IR35 review by HMRC may be facing a long, stressful investigation process, as Andy Vessey from Qdos Consulting explains.

IR35 compliance letters – contractor guidance on how to respond
Contractors receiving a new-style IR35 compliance letter from HMRC should only respond after seeking expert help, says Andy Vessey of Qdos Consulting.

Contractor HMRC inspections: do you have your IR35 life raft ready?
All contractors are HMRC investigation targets but will have nothing to fear with an ‘IR35 life raft’, as Carl Whittaker of Qdos Consulting explains.

Contractors who involve expert IR35 advisors can close down HMRC investigations early
Early intervention by expert IR35 advisors can prevent HMRC investigations turning into full blown IR35 status reviews, says Qdos’ Andy Vessey.

Contractor appeals against HMRC IR35 rulings
Contractors who have been found by HMRC to fall foul of IR35 and been presented with a large bill for back taxes can appeal to the tax tribunal.

Taxman’s tactics – what contractors should look out for when an IR35 investigation looms
Contractors should avoid trying to deal with a tax inspection without the benefit of specialist help, says former tax inspector Carl Whittaker from Qdos Consulting, who explains what can go wrong.

IR35 and contracting: just why do IR35 cases take so long to be resolved?
Contractors can be forced to endure years of stress before their IR35 cases are resolved with HMRC. Andy Vessey from Qdos Consulting explores why.

Contractor guide to using the Taxpayers’ Charter during tax and IR35 investigations
Contractors can use the Taxpayers’ Charter to help during IR35 investigations if they believe HMRC has behaved badly, says Qdos’ Andy Vessey.

IR35 taxes uncollectable if contractors’ company has no money
Contractors falling foul of IR35 and whose company has no cash to pay any tax due to HMRC are safe from personal liability, says Qdos’ Andy Vessey.

^ TopIR35 Experiences

IR35 case study 2 - a contractors IR35 story
A contractor explains his frustrations at trying to negotiate an IR35 Free contract with an agency.

IR35 case study 1 - a contractors IR35 story
A contractor explains how he used a legal expert to get his contract passing IR35.

^ TopIR35 Insurance

IR35 insurance – cover yourself with contractors’ tax investigation cover
Contractors investing in IR35 insurance are buying peace of mind. Or are they? Not all IR35 policies are what they seem, so check the small print.

Can I get financial protection against an IR35 investigation?
How can a contractor protect themselves financially against an IR35 investigation.

^ TopIR35 Test

IR35 Test for contractors - FREE
Free online status test. Evaluate your IR35 status now!

^ TopSpecial reports

IR35 Special Report - 10 years of IR35
ContractorCalculators special IR35 report, on the 10th anniversary of IR35. 10 years that shook and shaped the world of UK contractors

IR35 After 15 Years
History, analysis, and ultimate contractor guide to avoiding IR35.

^ TopWhere to get IR35 help

The following organisations have specialist knowledge of IR35:


Contact: Roger Sinclair
Phone: 0845-603-7215