IR35 solution – Quick ways to avoid
IR35 is quite unpopular among the contractors as it is tax legislation that calculates/assess the working arrangements of freelancers, work at home professionals and contractors. It’s a difficult type of tax to deal and IR35 solution by experts can be a great relief. For a contractor, it may be difficult to analyse and avoid this tax system but professionals and experts who have a lot of industry level experience can help you avoid it easily.
IR35 are not based on the turnover of the business. They are calculated for every invoice (amount). This system was introduced formally in the year April 2000 however it was proposed in the 1999 budget. Known famously as Anti-Avoidance legislation, this scheme was implemented to avoid the abuse by personal service companies. IR35 is government legislation proposed to put an end to the abuses by a personal services company. However, it is your choice to choose if this ‘legislation’ is applicable to you or not!
This is a concept that’s essential for contractors and those within the contractor community will agree on how much it affects their profession. IR35 has not changed and it is not going to change in the next few years but experts have found a lot of solutions to avoid it is complexities and make it beneficial for the contractor community.
Does a Layman contractor understand IR35?
Not every contract has legal knowledge. Apart from the legal professional not many contractors hold a degree in LAW. To understand IR35 tax law, one must have good knowledge and in-depth understanding of the process. It is a part of employment law. It helps the government to understand what exactly is self-employment and how the revenue and customs are faked in term of self-employment. Overall, it is known as the self-assessment tax and it will continue to be in practice for freelancers and contractors. It has an impact on your relationship with the end client.
To make it clear, IR35 tells you whether you are a disguised employee of the client or a real contractor. It is quite difficult to understand, analyse and find out however, it needs to be understood to avoid any issues.
The most common ways to avoid IR35
The best IR35 solution is to look for independent companies who can review the contracts, review and make changes to the contracts before you accept a work agreement with your end client.
HMRC revenue clauses
- HMRC has defined clauses to identify and prosecute contractors when they fail to follow the norms
- It allows substitution of another employee to provide the same services as you do
- Mutual agreement of waivers
- Supervision and control
These clauses are mentioned in the contract however, this is not enough for a perfect contract. The working arrangement has to check if it’s an independent contractor or disguised employee.
In order to be out of IR35, if you do not operate a limited company and you may use a different set of contracts like offshore umbrella companies which will help you to be out of IR35 and you have the benefit of a higher pay scale.