Running a business can be, pardon the pun, taxing at the best of times, both physically and mentally, even if you happen to be pretty handy when it comes to logistics and paperwork etc. If they’re perhaps not your strong point however, life can be much harder and much more complicated than it needs to be. As a business owner/contractor, it is your responsibility to handle your finances and accounts, filing annual returns, VAT returns, paying your taxes, claiming expenses etc, yet, when you add those responsibilities to those required for running and directing your own company, it can be easy to find yourself feeling overwhelmed and as if you’re sinking. IR35 tax legislation for example, has been causing business owners and directors a great deal of stress for quite a while now, and it’s not hard to understand why either. To help familiarize you with IR35, here’s a brief, yet detailed guide.
What is IR35? – Put simply, IR35 is a legislation of tax within the UK, specifically designed to enforce the payment of taxes on what the HMRC described as “disguised employment”. If for example, the HMRC feels that contractors do not actually meet the criteria for being classes as self-employed, IR35 will be enforced.
What does this mean for my business? – Well, if HMRC does indeed feel that you don’t meet the criteria for being self-employed, IR35 will mean that you will pay more National Insurance contributions, as well as more taxes in the process. As if that wasn’t enough, the rules behind IR35 can also result in contractors actually being prevented from keeping profits in order to expand their business in the future. Doesn’t sound too good, does it?
How to establish whether you’re self-employed – To begin with, to ensure you don’t face the wrath of IR35 rules and regulations, you need to establish whether or not you’re classed as self-employed, or simply employed. HMRC will view the position of each contractor and the fine details of each new contract they take on, to determine their employment status. Obviously each contractor would benefit the most from being classed as self-employed, but the problem is that as each contract is unique, it isn’t always that easy to prove that you are indeed self-employed, as on one contract you could be, yet on the other, it may appear as if you’re actually employed. Again, it sounds pretty tricky and complicated, but don’t worry, there are ways of getting around the IR35 rules.
What do we recommend? – There are a few ways of ensuring you get around IR35 rules, such as IR35-friendly contracts. The problem here is that you can’t guarantee each contract will indeed be IR35-friendly. The second option, and the most beneficial and popular option, is to hire accountants and experts in the field, just like us. Here at Phoenix, as part of our services, we’re able to provide a fully professional, in-depth review of each new contract you take out. We can therefore ensure whether or not each contract will make you exempt from IR35 rules, and if you aren’t we can then advise you on which steps to take next.