There are many benefits for a contractor who works in the form of a limited company. The problem is that many people have been using these benefits in a manner not permitted by HMRC. New measures to curb tax avoidance in the current financial climate are forcing more inspections and there are increasingly demanding sets of rules set out for limited companies. I recently spoke to my accountant about these changes and I had to make some minor changes.
Operating Independently from my Clients
This is the area of the legislation where I mostly failed to meet the guidelines completely. There is no way any of my clients would consider me as an employee of theirs. I have many regular appointments at client’s premises and I have come to form relationships with people who work at in house for my clients. Despite having excellent rapport, I still sign in to their buildings using my company name and for all intents and purpose, the people there think of me as an employee of the firm they have contracted which is exactly what I am.
The Grey Area of ir35
When I first studied the changes ir35 would bring about more than ten years ago, the world of contracting was considerably simpler. As long as I did not exclusively work for one client, that more or less had me in the clear. These days there are many ways to be ‘caught out’ and penalised for something that is genuinely not an attempt at tax avoidance.
These are some recommendations from my accountant that will keep the taxman away:
- Advertise and Market Your Business
- Maintain an Office Area
- Employ Other Staff if Possible
- Answer to Yourself and Not A Direct Superior
- Use Your Company Stationary
- Do Not Work Entirely at a Client Premises
- Provide Your Own Equipment to Complete Any Contract
- Make Sure You Have Professional Insurances
- Become VAT Registered
What the Recommendations Meant to Me
These recommendations really centred on the process of distancing myself from my client’s company. Some of them seemed a little ridiculous to me because they would simply hinder smooth running of my contract. As a professional writer, I write technical information about lots of different client’s equipment. I have done this a long time and I never receive work because of advertising. A lot of my work is from word of mouth and out of approximately 150 clients, I work regularly (once a year) for anything up to about twenty of them.
I found recommendation no. 7 very difficult to adhere to because a lot of my work requires me to see sensitive data that is located on my client’s network. As I am a third party contractor, it is not good practice for any firm to transfer their prized assets to my laptop. This is something I have managed to circumvent in most cases by operating with my written material as shared folders in cloud storage. Thankfully, this route is usually acceptable.
The Reality of ir35
It is unfortunate that there are so many people willing to use tax avoidance to increase their income illegally because it makes life more stressful for honest business people. In reality though, there is usually very little to worry about in regards to falling foul of the ir35 rules.
I have worked in this capacity for many years and I have had a number of inspections in that time. My advice is to get a good ir35 accountant to talk through your own situation.