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Surviving IR35 - Step 1

IR35, more properly known as the Intermediaries Legislation, was introduced in early 2000. It was designed to prevent the avoidance of tax and national insurance contributions (NIC) via the use of intermediary companies, by taxing such companies at a rate similar to the tax paid by employed workers.

This has been an unpopular piece of legislation, especially since most UK freelancers are genuinely self employed consultants who are taking entrepreneurial risk in providing their services. A well worded contract can help them underline their self employed status. Likewise, a poorly worded contract can undermine that status at a stroke.

The easiest way to solve this problem, is just to have your contract checked over by an expert. A qualified IR35 reviewer will look over it for about 120. This is really a very small amount, considering the thousands of pounds that you stand to lose if you get it wrong. It's plain, good economic sense to get your contract reviewed.

Before you send it off for review, I'd suggest you check some things yourself, just to see if there's anything that you obviously need to change.

1. Will your company be financially responsible for failure? [Yes = Good]

2. Will your sound management be profitable for your company, in performing the contract? [Yes = Good]

3. Is your contract specific to you, or does your company have the right to send alternative personnel? [Yes = Good]

4. Does your company bear the risk of bad debts? [Yes = Good]

5. Does your contract read "Contract for services" as opposed to "Service contract"? [Yes = Good]

6. Will you receive sick or holiday pay? [no = Good]

7. Are you in a "master and servant" relationship with your client? [No = Good]

8. Do you and your client have mutuality of obligations? [no = Good]

For a UK freelancer, if all of the above seems to be in order, then you have a good chance of being unaffected by an IR35 investigation. However, you need to consider not only what is written in your contract, but also how it is written. Even if all of the contents of your contract are in order, a badly phrased paragraph could still easily sink you.

So, step one in surviving IR35 is to get all contracts reviewed by an IR35 expert before signing. If the expert advises that the contract or part of it should be changed, get it changed before signing.