IR35 or not?

Yellowanimations

Hi,

I'm looking to setup a limited soon and have a quick question about IR35.

As a soletrader I work 3 days a week on contracts that would definitely fall outside IR35, I work from my own office space, on my own gear and could get someone else to do the jobs if I needed to do so.

The other 2 days a week I work in an office, for a service company and couldn't get anyone in to do the work instead. Which I understand would definitely be IR35 in most cases.

However i don't have any sort of actual contract with this company, I've worked with them freelance for the past two years now with no contract. I'm actually happy not having a contract, I can get on with extra work from my own clients when it's quiet and when they are busy I'll do a few extra days for them. The only official documentation we have in place is an NDA for the work I do for them.

My question is that if there's no contract would IR35 be a problem? Also If it is am I correct that I'd just need to pay my company for any other contracts and all their work would go straight through me to avoid getting caught IR35?

Thanks in Advance!

chrismac1

I would be looking to document what you currently do in such a way that your operations in this office fall outside of the IR35 net. The three key tests are:

Direction and control - although you do your work in their offices, you can probably do more of it in your own premises than, for example, many of my clients who work in the nuclear sector where this is not permitted. it sounds like you have a fair bit of control over when and how the work is done.

Ongoing relationship - you are clearly free to take on other work in the 3 days per week you are not there. Presumably if someone else offered you a short term project at double the rate in the other 2 days one week then you'd be free to take that up.

Substitution - you look as if you'd fail this test even if your contract were to say otherwise, but that goes for the majority of personal service company directors.

Two outta three ain't bad! My four point defence plan for all clients with a potential IR35 risk is:

1. Contract review - whether the NDA is sufficient we'd need to see before we sent it for review, otherwise you could ask your customer to improve on it as it's in their HMRC interests as much as yours. The review is £100 and is acccepted by HMRC as evidence you've behaved as a reasonable taxpayer.

2. Tax investigation insurance. Then you can match HMRC pound for pound if they pick on you.

3. Operations diary - keep a record of specific instances on each contract when you were clearly outside IR35. Over time this normally builds up into a very robust defence document.

4. Don't take the Mickey with tax! One of my clients has a £70k IR35 risk - if HMRC were to successfully show he is trapped by IR35, £70k is the bill. Many contractors locally take the Mickey by claiming travel costs beyond the 24 months, claiming lots of entertaining costs, and so on. In my view, taking the Mickey to save £1,000 in tax per year is just daft when you have a £70k tax risk hovering nearby.