Affected by IR35?

custard82

I am just finishing my first yr as self employed, having worked on two fixed term consultancy contracts (one for 30 days & 1 for 1 day) for a small limited company who also does consultancy (so its not just my time they bill a client for). I dont think IR35 would apply here. I am registerered as SE & starting to pull together my tax return, will be paying income tax & NI of course.

However, I am just about (from April 6th) to start a subcontractor contract with the same company for a fixed fee per month for working 4 man days per week, for 6 months (extendable). I fully intend to include the income in my 2010-11 tax return & pay income tax & NI.

I dont properly understand IR35 but it appears to be trying to stop ppl who try to avoid tax by drawing dividends rather than a salary. I am clearly not recieving income through dividends, but wanted to check before I sign the contract, if others agree.

Any help much appreciated.

fengirl_2

It all depends what job you are doing and what the legal relationship is between you and the main company.

Pennywise

IR35 can't apply to a sole trader - it is only for partnerships and limited companies. If you're a sole trader, you can safely ignore it.

custard82

Hi fengirl tnx for replying

I am an environmental consultant. for 2009/10 tax year I had two fixed term contracts, for 1 man day & 30 man days, at a fixed rate. It was clearly stated I was liable for all tax, NI, etc in both contracts. I am now looking at a fixed term environmental consultancy contract for 6 months @ 4 days/week for a fixed monthly fee.

Whilst generously I am granted holiday, it states in the contract that I will be self-employed & liable for all tax & NI & VAT (if payable, which it wont be).

tnx again for any thoughts

fengirl_2

As Pennywise says, IR35 doesnt apply to sole traders, but I would question whether this is a self employed position. Just saying you are responsible for your tax and NI doesnt make you self employed and the fact that you are given holidays makes me even more suspicious. I would want to see the employer's ruling form HMRC on this.

custard82

Ok pennywise tnx i didnt realise that. I am indeed a sole trader. Would HMRC still see me/the client as trying to avoid potential additional NI (err i think class 1b?), that would be payable if i was an employee (I think paying class 2 & 4 as self-empl, work out a bit little lower, than the liabilities if employed?).

you will now realise I know nothing about tax

tnx for reading & any views

fengirl_2

Yes, HMRC may well see the employer as trying to avoid operating PAYe along with class 1 liability. Which is why I advise asking to see the ruling from HMRC which says this is a self employed position.

Pennywise

But the risks stay entirely with the employer, not the sole trader. As long as you declare and pay your own taxes, you're OK. HMRC would go after the employer for the tax/NIC that would have been paid via payroll if HMRC decide you were indeed an employee.

custard82

thanks guys, advice much appreciated.

i explained this to my client & asked her to get some advice & as a min. review contract to a more standard subcontract, without holiday benefits etc (I shall just incr my fee rate & reduce man days in the contract )..basically she doesnt mind which way round it is & I think genuinely isnt trying to avoid NI's - but that doesn't stop HMRC thinking so.

I have explained if Class 1 NI liabilities are the reason for not employing me, I am happy to flex my day rate so she's not out of pocket (this is a long term friends & hopefully future employer, plus I get out of a bit of admin!). Only downside to employment is that DH & I are planning for a family so at some point there may be maternity leave & pay to consider. Even if i promise not to take excessive maternity leave, at stautory, for a one man ltd company, that's a fair risk she would be taking.

tnx again for advice & thoughts

James_Trimby

Good advice above. If you trade as self employed the employment status is your contractor (or employers) problem not your's. BUT watch the small print in a contract I have often seen the "employer" try to include the fact that they have a right to any taxes they are charged on your behalf should Revenue state you should be employeed. This is likely to be a lot of money so be careful signing anything with this clause in it. The revenue do not have to match the monies your are paying as self employed so this is a serious sum not just a few more % on the NIC. IF this is not in the contract dont worry not your problem! Dont forget that if you go employed you will have little chance to claim any costs against your income, and your own national insurance bill rises as well as paying the tax earleir

custard82

ok great advice. thanks James, pennywise & fengirl!