Introduction
IR35 is a complex subject. Being caught by IR35 is expensive. You can find out how expensive using the IR35 Calculator.
This article explains why you should take professional legal advice when both
reviewing your IR35 status and also in disputes with the Revenue when they
challenge your employment status.
Clients and agencies protect themselves – so should you
Both clients and agencies take legal advice for the content of the contracts
which their contractors (you) eventually sign. They do this to protect them
from any legal challenge or action from HMRC, another Agency or
you as the Contractor.
After an inevitable HMRC inspection every 5-6 years neither the client nor
the agency wants a huge tax bill for the contractors they have used in the
past. They will want to ensure that any tax liability is passed to the
contractor.
This inspection can then involve you, the contractor, in discussions with the
Revenue about your contract or even start a Self Assessment Enquiry of your own
business.
It is thus equally important that contractors also take legal advice to protect
their interests, namely the risk of IR35.
Cost of failing IR35
There is a huge difference in your net income depending on your IR35 status.
Depending on your contract rate it can range between £2,000 and £10,000 per
annum.
You can find out exactly how it affects you using the IR35 Tax Calculator.
To maximise your net income it is important to take legal advice and ensure you
remain outside IR35.
Status challenges
As a contractor you will be inspected by HMRC, on average, every
5-6 years.
They will challenge the tax status of each contract and will go back 6 years.
It is thus important to ensure your affairs are water tight with respect to
IR35.
It is very important to take legal advice to protect yourself against
challenges from the Revenue. If you don’t take any legal advice then there is
no one to protect your interest.
The best Revenue results are achieved when the client or contractor is not
prepared for the review.
Conclusion
If you are about to sign a new contract then you should immediately ask for a
review to protect your own interests.
Also, if you have been paying tax in previous years as though you are outside
IR35 and have not had your contracts reviewed you should do so immediately.
Updated Wednesday, October 04, 2006, [Originally published Wednesday, November 10, 2004]
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