Becoming a contractor and IR35

Stevey

Right,

A question to the wise. I have been working for 5 years for my company, and was considering becoming a contractor as I would like to reduce to 3 days a week, to allow me to focus on some other important voluntary work (debt counselling).

I was going to set up a limited company, and was obviously hoping it would be more efficient for tax, which would support me to do the voluntary work for the other two days.

I was also considering employing my wife to do my expenses, taxation and other company focused work as a company secretary, which would also be more tax efficient.

I have looked at IR35 and by the look of it I am pretty high risk if I base it on the new points tests. I would be the classic Friday Monday contractor, and I see their not happy about tax efficiency by using your spouses tax allowance either!

Thing is, my work currently gives me a lot of autonomy, I work from home currently even though they pay me a salary, and I run individual projects on their behalf that I exclusively manage, including time spent etc. I decide my hours of work, and only refer to management when there are problems on the project.

Really not sure what to do - I can do some real good with the debt counselling if this works out, but can't afford to do so if I end up paying at IR35 inclusive rates and can't pay the mortgage! Any thoughts or suggestions welcome??? - Thanks for reading folks

PlutoinCapricorn

This is exactly why IR35 was introduced in the first place! Many people in the IT world had the same idea, and the (then) IR were not happy.

It is really good that you want to use the extra time for voluntary work.

Have you said anything to your employer yet? Do you think they would be happy to reduce the number of days worked? Have you investigated off-shore companies?

grey_gym_sock

IR35 is a real issue, but the points test isn't part of the law, and is not a very good guide to it.

Pennywise

Forget the points test - it's not backed by law and is nothing more than HMRC's risk assessment tool.

The real criteria is the HMRC employment status indicator which is a lot easier to "pass" especially if you have autonomy.

magpiecottage

I am curious about what you do that involves debt counselling. Is it your work experience that enables you to do that?

chrismac1

3 key tests from Court cases - note the following refers to how things are operated not what is in the contract:

1. Substitution - most fail this and on the basis of the post so would you.

2. Ongoing relationship- on the basis of your post I think things could be set up in such a way that you could pass this test, raising invoices project by project and not by the hour and that sort of thing, having breaks between projects.

3. Direction and control - sounds like you'll be able to have a high degree of this, not being assigned to fixed working hours but working to individual project targets. Being self-supervised and that sort of thing.

So 2 out of 3 ain't bad. Then you get tax investigation insurance so you can spend £1 on legal fees for every £1 of public money HMRC waste on their side.

Have a look at some of the other posts on IR35 on this site for more information, and get good advice specific to your individual position.

Stevey

Thanks for the responses everyone.

Sounds a bit more encouraging than I first thought.

My work isn't directly related to debt counselling - I just have a passion to help the many who are in a state and can't see the woods for the trees - I'd be running a centre for CAP UK.

Couple more questions then - Where is the best place to get comprehensive Tax Investigation Insurance from. I saw the offering from QDOS (Taxwise Plus), but it seems to only be offered to brokers or accountancy companies for their clients??

They also offer insurance against the actual losses if HMRC find against you (circa £360 a year to cover a HMRC liability claim of upto £50K - does that sound like it's worthwhile?).

Another question - is it worth joining the Professional Contractors Group (PCG)? Their plus package (£220) also offers full tax investigation support as part of the membership??

Final question - where can I get good advice (I presume legal) on my likely status as a limited company for tax purposes?

Thanks folks.

notanewuser

Stevey wrote: »

Thanks for the responses everyone.

Sounds a bit more encouraging than I first thought.

My work isn't directly related to debt counselling - I just have a passion to help the many who are in a state and can't see the woods for the trees - I'd be running a centre for CAP UK.

Couple more questions then - Where is the best place to get comprehensive Tax Investigation Insurance from. I saw the offering from QDOS (Taxwise Plus), but it seems to only be offered to brokers or accountancy companies for their clients??

They also offer insurance against the actual losses if HMRC find against you (circa £360 a year to cover a HMRC liability claim of upto £50K - does that sound like it's worthwhile?).

Another question - is it worth joining the Professional Contractors Group (PCG)? Their plus package (£220) also offers full tax investigation support as part of the membership??

Final question - where can I get good advice (I presume legal) on my likely status as a limited company for tax purposes?

Thanks folks.

Any good accountant should be able to help.

Is there anything your wife can do to bring money into the company?

trailingspouse

As far as employing your wife to do the books (and thus, presumably make use of her tax allowance) - it is perfectly acceptable to employ her (or make her a director if you form a limited company) as long as you actually pay her, and she actually does the work. Simple really.

chrismac1

It's often not quite as simple as that, for more details Google "Arctic systems Jones case". You can never be more than 95% confident unless your wife is also a fee earner, but any of the following will help:

1. Any shares she ows have voting rights.
2. She has a position such as director or secretary.
3. She has a role which is visible to third parties.
4. She takes legal responsibilities such as putting her name to the accounts at Companies House.

jaketownsend

I follow IR35 quite closely, especially since the advent of the 'IR35 business entity test'...

Not sure if they're trying to drum up trade, but this piece on 'Lawspeed' today suggests that an upcoming change to the IR35 rules to do with office holders may be of some concern...

I'm not allowed to post links as a new user, but its on the RHS of Lawspeed (dot) com - Overview of a seminar, perhaps an old time could post the URL.

"It became clear that the application of IR35 will be significantly extended by the proposed legislation, even though the government implies that the changes are only minor."

Any IR35 experts have any views on this?

Thanks Jake