IR35 -- contractor's tax -- is it fair? How to avoid it?

[kmn]

Hi,

 

What do you think about IR35 -- the tax on certain types of contracts? Is it fair? Should it be abolished?

 

If you've been doing contracting, what have you done about it?

 

Thanks

[BazzaS]

IR35 isn't a "tax on some contracts". It is a set of rules to ensure that people who aren't really contractors but who previously had claimed to be contractors aren't able to do so.

 

If you are a bona fide contractor, then ensure your contract is phrased so as to ensure you fall outside the scope of IR35. (Do you have to be the person doing the job? Can you supply someone else instead? Do you work fixed hours at the employers's behest?)

 

IR35 was brought in primarily to target "disguised employment" in the construction industry, although it has affected other contractors too.

[kmn]

Thanks for the background BazzaS.

 

I'm thinking about going contracting in the IT sector as I've been a permie for several years now.

 

Companies hire IT contractors usually when they have a temporary and urgent surge in demand for IT workforce but they don't want to take on the liability for a permie. They also need someone experienced enough to be ready to contribute from day one. Contractors make more, but that's the reward for the extra risk they take (e.g. getting fired easily and not being able to find a contract for many months) and having to pay extra expenses (training, travel, etc.). That seems fair to me.

 

What I don't like about IR35 is that the criteria for determining whether it's 'disguised employment' seem to catch many legitimate contractor assignments. For example, in many types of IT work, it would simply be impractical for a contractor to supply another person, because it's difficult and time-consuming to do a handover of a technical tasks that is in progress. Working anything other than fixed hours would also be impractical in many types of IT work, because of the requirement to work with other team members -- contractors and permies.

 

So if I get a contract that falls under those criteria, what can I do to prove to HMRC that I run a legitimate contracting business?

[BazzaS]

 

What I don't like about IR35 is that the criteria for determining whether it's 'disguised employment' seem to catch many legitimate contractor assignments. For example, in many types of IT work, it would simply be impractical for a contractor to supply another person, because it's difficult and time-consuming to do a handover of a technical tasks that is in progress.

 

So if I get a contract that falls under those criteria, what can I do to prove to HMRC that I run a legitimate contracting business?

 

 

My understanding is that one of the factors is IF you could supply someone else rather than you, not that you DO actually do so.

 

In my role the employing organisation contacts an agency, who contact me (as director of my limited company), who contract me (as an individual).

 

This leads to the situation where I talk to myself (at least : two different legal entities talk to each other, they just inhabit the same body!).

I'm fortunate in that the role I undertake REQUIRES me to be an "independant practitioner" : so by definition "no one can tell me how to do my job" : they can just get rid of me if they don't like the way I do it.

 

Thus I avoid IR35 by at least 2 factors : "independant practitioner" and the "company set-up".

 

Even if I was working through an "umbrella company", my understanding is "independant practitioner" would still exempt me from IR35.

 

If HMRC's advice pages aren't enough help to enable you to navigate the IR35 maze, would you consider joining one if the Contractor's organisations with experience of IR35 who might be able to guide you how to stay IR35 exempt / compliant?

[kmn]

Thanks BazzaS , that's very helpful!