IR35 was introduced in April 2000 designed to catch contractors operating as ‘disguised employees’. Our FREE IR35 guide can be downloaded and will provide you with more detailed information on IR35.
If you are considering operating outside of IR35, have you had your contract reviewed to be absolutely certain that you do in fact fall outside IR35?
The penalties for non-compliance can be extremely severe. An IR35 battle has recently cost a contractor £99,000 for falsely operating outside IR35. Jon Bessell, whose client was the AA, lost his appeal because Special Commissioner Charles Hellier ruled that he had become “integrated” into his client’s firm.
“[The Special Commissioner supposes] was Mr Bessell in business on his own account? He concluded that [Mr Bessell] worked on parts of a project that were allocated to him - within the AA's teams which are integrated into the AA business. [The SC] is therefore of the opinion that Mr Bessell was a ‘professional employee’.”
John Bessell appealed his case in June 2008 and the long awaited judgment was passed in September 2008. To read the full details of this case please visit our Dragonfly Vs HMRC page.
In order to work outside IR35, you need to be able to prove that you are working independently. Unless you have provable autonomy within the role i.e. the client has no real control over the duties you are performing, you are unlikely to fall outside IR35.
A contract can be written to fall outside IR35 but if it doesn’t accurately reflect your working practices, it really isn’t worth the paper it’s written on. For example, if a substitution clause has been included in the contract, but, in reality, you don’t know anyone that you could send in your place, the clause in the contract would have no impact on your IR35 status. HMRC would actually review your working environment and practices so a contract with conflicting terms wouldn’t even be taken into consideration in an IR35 case!
If it is ruled that you have been falsely operating outside of IR35, you would be forced to pay back all the previously underpaid tax, a penalty of similar value and interest for the time you have held onto the additional funds.
The investigation window is 5 years and HMRC can look into your accounts at any point within this timeframe. The moral of the story is: only operate outside IR35 if you are absolutely certain of your IR35 status.
An Umbrella Company removes the burden of IR35. By operating as an employee of an Umbrella Company, the IR35 rules do not apply to you! This means you can work as a contractor without the worry of any additional tax bills and penalties.
If you are unsure of your IR35 status, ContractorUmbrella provides a contract review service and would be happy to carry out an assessment for you. Alternatively if you would just like to make a general enquiry, please contract us on 01206 713680 or email us at firstname.lastname@example.org.