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Limited company contractors should check they comply with the law

freelancesupermarket.com newsroom

RSS 02 August 2011
Contractors may want to make sure they are operating within the law after two recent court cases were highlighted in the press.

The first case concerned the question of employment status. 20 car valeters claimed to be self-employed contractors and even produced written contracts to make it seem as if there was a contractor-client business relationship.

However, a tribunal discovered that the valeters were treated in the same way as other employees at the place where they worked and the written contracts were nothing more than a sham. This case highlights one of the problems contractors have faced ever since the inception of IR35; the relationship between contractor and client.

In order to satisfy HMRC, contractors have to prove that they are in business of their accord and not just disguised employees. The Office of Tax Simplification is currently considering what to do about the problem of IR35 with one suggestion being that contractors take a simple business test to establish their tax status.

In the second case, using offshore trusts to avoid paying tax backfired on two taxpayers who received their income through an offshore trust in the Isle of Man. Prior to 2005, this was a perfectly legally way of generating income from UK based activities without paying income tax. However, the government closed the loophole with retrospective effect in 2005.

The claimants argued in court that their human rights were infringed by these retrospective changes. The court disagreed, saying retrospective legislation had been used before and in these cases were proportionate and compatible with human rights.

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.
Image: banana skin by DaveBleasdale

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