Contract Advice and IR35
Do you as a freelance contractor or consultant understand your supply contract and the legal and IR35 tax implications that you are agreeing?
You need to assess whether your assignment will be caught within IR35.
At the moment (August 2019) the majority of Contract Assignments in the Public sector are being advertised as/issued on the basis that they are caught inside IR35 and subject to full tax and National Insurance deductions. Some of these if independently assessed may well be outside of IR35. HMRC intend to spread this into the private sector in April 2020 which will mean many contractors having to give up Limited company contracting unless they can prove that they are genuinely working outside IR35.
BITE’s Compliance portal has a number of tools within it that a contractor can use to test, identify and prove (if this is the case) that their contract lies outside of IR35. This can then be used to help the fee paying end client (if they are a medium to large business) produce the Status Determination Statement for the contract. If they are a small business the contractor can do their own status determination and log this in the compliance log with BITE.
If you have your contract independently assessed you are far less likely to be pursued by HMRC to justify whether your contract is outside of IR35 or not. This is a free service provided by BITER Compliance and our associates S&S when you decide to place your contract through BITE Contractors Ltd. Alternatively we can provide a contract assessment for BITE Members through QDOS a recognised accountancy organisation.
Do you understand the legalities of your contract? Is your rate competitive? Do you need advice on your contract status? What is your notice period and what is your liability? What insurance do you need? Are you sure your not operating as an MSC? Very importantly is your client credit worthy do you want us to check them out?
Are you going to build up a tax liability?
At BITE Compliance we offer Contract Advice
Initial Free Advice on the commitments you are making in your contract. We will review this against the benefits of permanent v contract work and employment v freelance status. We will recommend what we feel is the best way forward for your needs and then offer an opportunity for one or more independent professionally qualified sources of advice for a second opinion. We can offer a number of services such as our serviced office facilities and “buddy system” which can help prove you are running a genuine business with a right to substitute workers in the contract and hence help secure your net income.
Practical Contract Advice on your contract or proposed contract is provided free as part of the Contract Job Search service. However our Contract Compliance Portal provides a real easy to use tool that can help manage and prove that a contractor is working outside of IR35. This can be used to produce a Status Determination Statement or to evidence that the contract is genuinely operating outside of IR35.
The Inland Revenue will review the actual working practices adopted together with the legal form of each contract. Each IT engagement will need reviewing on a case by case basis, taking into account a number of different factors. The legislation will test the nature of each engagement and judge it to be one of employment or self-employment (freelance and outside IR35).
The old HMRC Business Entity tests (2012) have now been abolished however the factors used are still a strong indicator on how the revenue look at your business to see if it is a genuine business and assess whether under IR35 It should pay full tax and National Insurance.
1. Business premises- do you rent own a business premises / serviced office
2.Professional Indemnity Insurance (PII) – do you purchase it
3. Efficiency- have you in the past received full payment for work completed ahead of schedule
4.Assistance- does your business use employ engage any worker to assist in 25% of more of its turnover
5.Advertising -Have you spent £1,200 or more on advertising
6. Previous PAYE- were you previously PAYE in this contract- a major negative
7. Business plan and business bank account- Have you produced one?
8.Repair at own expense- do you put right errors you make without billing is this in your contract?
9.Client risk- have you been unable to recover money from the client covering 10% of turnover?
10.Billing Invoice- do you invoice before being paid?
11.Substitution are you able to nominate a substitute to perform your duties is this substitution clause in your contract?
12.Actual substitution-Have you actual made a substitution?
There is little doubt if you genuinely meet theses points you are unlikely to be investigated unless you fail to make statutory returns or highlight your business in other ways for investigation. BITE can help you understand how you can genuinely represent yourself as outside IR35 through using its contractor services.
The BITE Compliance Portal offers a simple review of actual working practices via a questionnaire. Our Contractor compliance portal is there for contractors to use and identify whether they are truly working outside of IR35 and operating in a compliant manner. Additionally we would urge each contractor to complete a CEST test (HMRC’s test) based on their contract and a contract log supplied on the portal.
Key factors in any contract review are likely to be!
- The right to exercise control – Is the contract assignment subject to ongoing client supervision direction and control? Can someone tell you what to do or how to do it? The issue of Direction supervision and control is becoming increasingly important in the revenue’s eyes and you must demonstrate that you are providing an independent service that you determine the delivery of.
- The right to get a substitute or helper to execute the work – Are you free to hire someone else to do the job or does the client specifically require your services?
- The provision of equipment – Are you obliged to provide items of equipment essential for the execution of the assignment? (A worker provided with office space and computer equipment by the client may be considered employed)
- Financial risk – Does the execution of a particular assignment expose the contractor to any financial/commercial risk? E.g. fixed price contracts; buying assets in the business and bearing associated running costs; expenditure on training to gain a skill.
- The basis of payment – Employees tend to be paid a fixed wage or salary. Is the contractor paid by the hour/week/month or paid overtime? (i.e. Time and Materials) or is a fixed sum paid on the completion of an agreed deliverable?
- The opportunity to profit from sound management – A person whose profit or loss depends on his capacity to reduce overheads and organise work effectively may well be self-employed.
- Part and parcel of the organisation? – are you an integral member of the client’s staff?
- The right of dismissal – Do you have the right to terminate a contract by giving notice of a specified length? (A common feature of employment.) This is less common in a contract for services which usually ends on completion of the task, or if the terms of contract are breached.
- Employee benefits – are you entitled to sick pay, holiday pay, pensions or expenses?
- Length of engagement – long periods of working for only one client may be considered typical of employment.
- Personal factors – Is the Contractor reliant on him/herself for obtaining work? Is the contractor working for a number of clients on concurrent projects? Is expenditure on office equipment and accommodation necessitated by the nature of assignments undertaken?
- In Business of your own accord – Evidence that you are an independent business operating as any other business would be expected to do and not as an employee. A strong point is evidence of Marketing and Advertising of your company services. Something that BITE provides and invoices for if required through a B2B Invoice for Advertising or Marketing services on the Internet.
- Mutuality of obligation – An ongoing obligation to provide work and to do work provided should not be an explicit or implicit term of the contract. Further work should be under a separate contract. Provisions enabling the client or agency to extend without the consent of the contractor should be avoided.
- Exclusivity – It is entirely inappropriate for an independent contractor to be unduly restricted from providing services for other clients.
- Intention – As the intention of the parties is not to create a relationship of employer/employee, a clause should confirm the independence of the parties and that there is no relationship of employment. To support this reference to procedures for sickness or absence, misconduct or overtime should be avoided.
The full Inland Revenue guidelines can be found at Inland revenue guide .
In order for an assignment to be considered ‘self-employment’ for tax purposes, and therefore outside the scope of IR35, the assignment will have to pass the tests outlined above, (largely covered in the check employment status for tax the CEST TEST ) and your business must be seen to operating as a genuine legal compliant business. In addition, such contracts will only be assessed as ‘self-employed’ if the end-client is prepared to outsource responsibility for tasks or deliverable’s to the contractor. It is unlikely that many assignments will satisfy the tests for self-employment unless clients are willing to change working practices to accommodate self-employment contracts. In practice clients may be reluctant to do this, however if contractors request the change “simply” and clients start to find it difficult to secure good contractors then they will be more likely to do so.
Great care needs to be taken in determining if a contract is one of self-employment, and therefore outside the scope of IR35. If a company treats revenue from an assignment as falling outside the scope of IR35, and if the Inland Revenue does not agree with this treatment, the Inland Revenue will recover the underpaid tax and interest. They also have the right to issue as a penalty 100% of the underpaid tax, in addition to the additional tax due. As of April 2020 the Revenue will have the right to pursue various parties in the contract chain to recover their claim if the contractor has not or cannot pay the penalty claim.
It will be important that you agree with your accountant or adviser the best action to take. SO DON’T GET CAUGHT OUT. SEEK ADVICE AND MAKE PROVISION FOR PAYMENTS TO THE INLAND REVENUE AND COMPLETE A CONTRACT LOG TO PROVE YOU ARE OPERATING A GENUINE BUSINESS.
If you Contract Direct – Get a Safety Net!
Do you have the opportunity to contract direct to the client with no agency involvement?
BITE provides a “safety net ” for contractors who require extra security. This can provide protection against being left high and dry if the client goes “bust” or “does a runner” or is just a slow payer.
We help ensure the contractor gets paid!
- BITE’S credit checking service ensures the client is assessed and any risk understood and managed.
- BITE’S Credit Control service collects the contractor’s money in a timely manner.
- BITE’S insurance service guarantee’s payment for satisfactory work completed within the contract terms.
- BITE’S Professional Indemnity insurance covers contractors for reasonable professional errors or mistakes.
The ‘safety net ‘ also helps provide or source the necessary contract advice to assess whether you may or may not be caught by IR35 and thus whether you can save approximately 20% of your pay, or make provision for payment to the Inland Revenue.
No Job no Training costs guarantee disclaimer: Under the 10 step job search program, we can’t help you get a job unless you regularly visit our offices, attend coaching and mentoring sessions, utilising the support provided to you. We work face to face with real people and you must work with us to help you. If then you don’t gain a job in the agreed time having attended the whole 10 step career coaching programme and used our job search database correctly we won’t charge you a penny and will refund the cost of any training you have undertaken that we have advised you to invest in!
The Three Day CV Marketing Personal Brand Plan does not carry a no job no training costs guarantee.
However If you purchase one of our training modules separately, attend and are not satisfied with it we will refund your money.
BITE Compliance covers: IT Contracting London UK, IT Consulting London UK, IT Contract work London, IT contract Jobs London, Temporary IT work in London, Temporary IT Jobs in London, working with Freelance Interim Consultants for professional jobs and IR35 and Limited company or PSC Compliance services.
BITE also offers: Contractor marketing and advertising services, CV Marketing services, with how to write an IT Contract CV to produce a Killer contract CV with, IT CV templates and IT CV examples. Your Job search in our London office provides access to the hidden contract job market, career coaching for contractors, and contractor career management services .
BITE is not a visa or employment agency, nor an accountant or tax adviser!