May 2014Summer Newsletter fromGenie Accountancy

Follow us:Speak to us on: 01296 468185 or log on to www.genieaccountancy.com

Is it specifically you who must complete the work?Your contract should allow for you to substitute an equally qualified person to perform the services in the event that you cannot attend.

Is there a mutuality of obligation?Is the client obliged to offer you work, as an employer would an employee? Are you obliged to take on the work after the expiration of your contract?

Does your end client “control” how you undertake your role?How the project is to be completed is a strong indicator of the IR35 status. If your end client prescribes how the task is to be undertaken and the work to be carried out, employment may exist. Your contract should clearly state that the client has no right to control and that whilst they can make reasonable requests, you have no obligation to follow them.

Does the contract stipulate that you will be paid through a payroll system?Your company should be raising invoices based on timesheets; you should not be being paid

through payroll. Payment of all taxes should be the responsibility of your company, not your client.

Are you exposed to additional risk compared to an employee?Are you required to make good mistakes at your own expense and have Public liability insurance? Are you at risk of the contract being terminated immediately in certain circumstances?

Has HMRC judged that a previous contractor performing the same work has fallen inside IR35?Whilst this may not be directly related to your contract it is a vital starting point.

If you have answered “yes” to one or more of these questions your contract may be subject to IR35. This can be expensive from a tax perspective as you will be deemed to have taken 95% of the company’s turnover as salary and will need to pay the associated tax and NI on this.

For further information on IR35 ask your accountant for a copy of our IR35 guide or best still discuss it with them over a coffee.

IR35IR35 legislation was introduced with the intention of properly taxing “disguised” employees. Your IR35 status determines how you can be paid from your company and must be reconsidered for each and every assignment.As director of your company you are responsible for determining your IR35 status based on your contract and working practices. You should consider the following:

“This quarters newsletter focuses on IR35, the legislation that effects all contractors. It seems that IR35 is forever in the news and this has certainly been the case following the recent House of Lords review. Given the importance of IR35 and its implications on how you extract funds from your company, it is a good idea to keep up to date with current thinking and direction.

We hope that you find this newsletter useful, but as always if you find yourself with further questions do not hesitate to contact your accountant for further advice.”

Helen ChristopherOperations DirectorGenie Accountancy

Last quarter we gave you an update of Tendai’s baby news. This quarter we are concentrating on James Davis. James is one of the Client Accountant’s here at Genie Accountancy, having joined the team in 2011. In addition to his own portfolio of clients he is also overseeing those of Tendai Mapfeka who is currently on maternity leave. Until recently taking the decision to hang up his boots due to injury, James was a keen rugby player however he remains an active participant in both cycling and running.

May 2014Summer Newsletter fromGenie Accountancy

Follow us:Speak to us on: 01296 468185 or log on to www.genieaccountancy.com

The House of Lords have recently published their report on IR35 and given their recommendations on its reform. What changes have been proposed and when are they likely to take effect?

At the end of 2013 the House of Lords “called for evidence” on the pros and cons of IR35. As you are aware, IR35 aims to remove any Tax and NI advantage individuals gain by running their business through a company. The evidence presented to the House led them to make the following comments:

Scrapping IR35 –many have called for the abolition of IR35, including the Office of Tax Simplification. The House of Lords had to address this question, given the unclear legislation, and HMRC’s ineffective attempt to enforce it since its introduction. The Lords have rejected the idea of abolition since they believe it would create too big a risk of unfair tax avoidance, so it looks like IR35 is set to stay!

Changes to IR35 – The Lords report included 16 recommendations, although not all were relevant to IR35 and many were very vague. The main thrust of their comments was the HMRC needs to undertake far greater and more detailed studies in relation to the cost versus benefit arguments in relation to IR35. The committee has asked HMRC to report back to them on how the IR35

legislation can be made more effective, so it looks like IR35 will remain an issue for the foreseeable future.

Investigations – HMRC gave the select committee no indication that they were to increase the number of IR35 investigations, but rather that they will continue with their current programme. Over the last twelve months the numbers of investigations have increased ten fold, but in total the number still remained less than 300.

Identifying Personal Service Companies – the House of Lords also asked HMRC to consider the questions currently asked on Self Assessment tax returns and RTI reports. Your self assessment return asks for confirmation of monies earned through your Personal service company and the RTI submission asks you to confirm if you are such a company. Neither question is currently compulsory but the House of Lords made the point that this hinders accurate information in relation to individuals potentially effected by IR35.Overall the report provides no definite changes so our advice is to continue as you are. Ensure you regularly consider your IR35 status, think how you can evidence your view that you are outside the legislation and if in doubt take advice from you accountant.

You have a responsibility to consider your IR35 status on each of your contracts and it is important if asked, that you can evidence your status and the thought process you went through to arrive at your conclusion.

What evidence should you keep?1. The actual contract – this should include all appendices and schedules that are applicable to the assignment. Any notes relating to negotiations over the contractual arrangements should be retained.2. Your decision making processes in establishing that you are not caught by IR35. This may or may not include a contract and working practices review undertaken by a specialist firm.3. Confirmation from your end client/agency that they do not require personal service, that you are not under their control and that there is no mutuality of obligation. You may have correspondence regarding the lack of any of the above factors.

4. Phone lists, or site badges which state that you are a “contractor”.5. Internal documentation showing that you are referred to as a “contractor” rather than an “employee”.6. Evidence that you have provided and used your own equipment on the project.7. Show that you work from home. Keep an email trail showing that you have worked from home, or simply a record that this option is available to you.8. Advertising, websites, business cards, insurance while in contract.

Make an effort to retain as much evidence as you can to support your status as a contractor rather than an employee. Remember, HMRC can go back six years if they decide to review your status, so you will need to save the evidence for the relevant time periods .It is always easier to get proof at the time than have to go back six years later!

Evidence to gather to prove you are outside IR35

IR35 – What did the House of Lords have to say?

Genie Accountancy is pleased to confirm that we have renewed our associate membership of Bauer & Cottrell in order to continue to provide our clients with the best possible advice with regards to IR35.Bauer & Cottrell are leading IR35 experts and have been providing contract reviews and working practice assessments for many years. The team is led by Kate Cottrell, a leading figure on IR35 and member of HMRC’s IR35 Forum. We believe that our clients have access to the very best advice through our relationship with Bauer & Cottrell, since both firms share the same values in terms of the importance of compliance and clear advice.Bauer & Cottrell offer Contract reviews to all of our clients at a reduced fee, so if you feel that you need some advice why not take advantage? What price can you put on peace of mind?

Associate Membership