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IR35 Rules - a guide for freelancers and contractors

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Being caught by IR35 is similar to getting attacked by your pet rottweiler. You took a BIG risk ignoring the danger and now it's come back to bite you HARD.

With so much information about the IR35 rules online, it's difficult to know where to begin. If you give me 5 minutes i'll explain EVERYTHING there is to know.

Let's get started.

What is IR35?

IR35 is legislation that focuses on the notional contract between an engager and the person being engaged, and looks to see if there is an employment relationship between the two.

Engager = paying client
Person engaged = freelancer

If there is an employment relationship then the IR35 deemed payment applies, if there is not an employment relationship, it doesnt.

Case law says that for an employment to exist, the relationship between the two parties must show ALL the "irreducible minimum" of three charateristics:

1. Personal Service
2. Control
3. Mutuality Of Obligation

1. Personal Service
2. Control
3. Mutuality Of Obligation

Being outside of IR35 is about proving that there is an employment relationship NOT about proving self employment, there is a difference. Having one of the three factors above missing means that there will be no employment relationship, and no IR35.


What do I need to do to protect myself against IR35?

The most important thing you need to do is take action - NOW. Protecting yourself against IR35 is not that difficult, provided you are willing to invest a little time at the start of each and every assignment.

Where can I find more information about IR35?

Our ASP (Accountancy Service Provider) and contractor resources sections are packed full of information about the IR35 rules, where you can go for professional help, and what NOT to do should HMRC pay a visit. We also have further bedtime reading for you below.

Do I need IR35 Insurance?

It is advisable, yes. You can pick up IR35 insurance for a small annual fee, which will protect you financially in the event of an IR35 tax investigation.

Qdos provide a cracking little product called Tax Liability Cover (TLC35) in their online shop.

You may also wish to have your contracts reviewed to ensure they correctly position you outside of IR35 (provided of course this does reflect the actual working relationship between you and your client).

I think I need a specialist Contractor Accountant

If you're not confident in going it alone, there are plenty of IR35 accountants out there that will help you with the day to day accountancy and administration of your limited company. We have compiled a list of over 100 providers in our accountants league table - they are ranked by customer feedback, contractor benefits and HMRC compliance. Here are a few of our personal favourites:

1. K&B Accountancy - serving UK contractors and freelancers for over 10 years
2. Cloud9 Accountancy - experts in IR35, s660a and all things freelance
3. Forbes Young - shaking up the industry with their revolutionary service

Of course, if you genuinely are caught by IR35, you can always work through an umbrella company. Check out our umbrella companies league table or get in touch with one of providers listed below:

1. JSA Umbrella - first class customer service and just £9.95 a week
2. Churchill Knight Umbrella - recently voted the best umbrella company in the UK
3. Smartwork Umbrella - putting HMRC compliance at the forefront of their service

Further reading

The potted guide to IR35
IR35 this, IR35 that - so just so i'm clear...what is IR35?
IR35 - so let's use "control" to our advantage
IR35 rules - a 60 second summary
What every freelance contractor should know about IR35

© 2009 All rights reserved. Reproduction in whole or in part without permission is prohibited.
Image: Rottweiler by pwcorgigirl

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