IR35 – The New Rules

1. IR35 Explained: What It Is and How It Affects UK Contractors

IR35 was introduced in 2000 to determine the employment status, for tax, of individuals who provide their services through their own limited companies.

All too often independent contractors, working through their own limited companies, are entitled to receive advantageous tax treatment  on their earnings, in that they can claim expenses and take the bulk of their profit by way of dividends.

On the other hand workers who are considered to be working as “disguised employees” of the end client are only entitled to receive income that is taxed on a PAYE/NI basis.

Since 2000 the IR35 rules have been largely ineffective, because in the private sector, it is the contractor who determines their own individual IR35 employment status. Not surprisingly, HMRC believe there is widespread non-compliance with the rules, resulting in a tax shortfall to HMRC.

In April 2017 the government moved the goal posts by gaining the use of IR35 in the public sector. As a result, the Civil Service, Local Government, NHS Trusts and others found that they had to review all their contractors contracts and bring many inhouse as employees.

2. IR35 Private Sector Reform

In late Summer 2019 the draft legislation was due for release to cover the private sector, with a view to implementation in April 2020.

Under the draft legislation all companies must take “reasonable care” when assessing if roles are inside or outside IR35. Taking a blanket approach to assess all these rules won’t deliver this. Firms must show they have carried out individual assessments.

The potential financial penalties can be significant if incorrect steps are taken.

3. How to Stay Outside IR35

The following factors will help demonstrate that you are not a disguised employee onsite and caught by IR35.

Make Sure Your Contracts Accurately Reflect Your Working Arrangements

It makes little sense having a contract that states that you will be subject to the control of the client, or that the client’s processes and procedures will apply to you when they don’t in practice. Also, make sure that the contract between the agency and the client does not contain anything that contradicts your contract with your agency.

It would make good practice, if you work through an agency, to ensure the client is in agreement with the key IR35 clauses contained within the contract. If the contract contains a substitution clause, but the client says that this isn’t workable, this could make the contract a sham meaning that you would be unable to rely on such clauses.

We always recommend that you provide a copy of your contract to Legal Services before you sign, in order to ensure that the contract supports your position as a true independent contractor.

Align With Your Client on Your Independent Contractor Status

If your client sees you as an extension of its own workforce, the company is more likely to treat you as an employee. Make sure they know that you have been contracted for a specific reason and that they treat you as an independent of their organisation throughout your assignment. If they integrate you into the organisation in a similar way to how they integrate employees, this will be damaging to your IR35 status.

This is particularly important when your client representative (i.e., The person who would liaise with HMRC in the event of an IR35 enquiry) is different from the individual who hired your services or worked with you day to day at the outset of the project. If necessary, provide a copy of your contract to the client representative or even agree a “working practices statement” which sets out how you intend to work/be treated whilst on an assignment with the client to avoid any misunderstandings.

Show HMRC You Are Treated Differently From Permanent Employees

Different pay and benefits alone will not be enough to support your status as an independent contractor. Flexible working, working on multiple assignments for different client, providing your own equipment, working on a specific package of work for a fixed fee and/or a fixed period are all good ways of showing that you are truly independent.

Work on Short-Term Projects to Strengthen Your IR35 Position

Whilst providing services on an assignment that lasts a number of years, will not bring you within IR35, it would make good practice to work on short-term projects. By doing so, you will build a client base, which can make it difficult for HMRC to say you are an employee of one of your clients.

How Demonstrating Financial Risk Supports Your Outside IR35 Status

HMRC like to see independent contractors showing a lack of financial security and from time to time incurring losses, even though this doesn’t make good business sense. This could involve you showing that you have financial risk in terms of bad debts, rectifying work at your own cost and investing in your company, all good “badges of trade”. Keep records of any such instances occurring as they will prove useful in the event of an IR35 enquiry.

Work With Multiple Clients to Prove You Are Genuinely Self-Employed

The more clients you work for, the easier it is to demonstrate that you are self-employed, whereas only having one client as your sole source of income for a lengthy period of time may suggest that you are working on an ongoing basis, similar to an employee. To counteract this, pay for your own training and provide as much of your own equipment as possible and pay for them through your business to ensure they are properly accounted for.

IR35 and Recruitment Agencies: Understanding Your Liability in the Supply Chain

Unfortunately the consultation document has created a confused liability picture for clients and their agencies.

The consultation document suggests that intermediaries in the supply chain will have an obligation to pass the status determination decisions down to supply chain; and if HMRC identifies a tax shortfall, they will look in the first instance, to the intermediary that they believe has failed to fulfill its statutory obligation.

In addition, the consultation document is proposing that in the event that HMRC fails to recover any tax shortfall from the failing intermediary, it will then look to the Agency that has the contract with the end client.

Lenka Torok

Lenka Torok

Tax Manager

What's Your Role At The Company, and What Do You Enjoy Most About It?

My name is Lenka Torok, I am mum of two beautiful daughters. My role at HQ is to provide financial and tax advice to both our personal and corporate customers, ensuring they maximise profit, minimise expenses and are compliant when submitting their tax returns.  I am a qualified accountant with 18 years’ experience. I am passionate about advising people and helping them navigate their way through their financial and tax affairs, which for many can be an extremely daunting experience.
 
However, I must be honest, and admit that despite growing up in north Slovakia, studying in Sydney, Australia and now living in Surrey, UK I am still yet to master the Liverpool accent. 

What's a fun fact about yourself that your colleagues might not know?

At the beginning of my career, I did some work experience at a magistrates court which involved going into prisons to take statements from defendants. Another fun fact is that I once met a black bear when holidaying in the Canadian Rockies – he was very rude though and when I waved at him, he didn’t wave back!

What is your most memorable project?

I enjoy most of the projects I’ve been involved in because preparing tax returns and sorting financial matters is like doing a jigsaw puzzle and collecting up all the missing pieces.

Outside of work, what are your hobbies or interests?

I used to be a junior professional cross-country skier, so I absolutely love skiing and all outdoor activities such as walking, climbing and open water swimming.

What's a piece of advice or motto you live by, both personally and professionally?

No matter how difficult the problem, there is always a solution!
Natalie Cross

Nattalie Cross

Admin Assistant & PA

What's Your Role At The Company, and What Do You Enjoy Most About It?

My role in the HQ Accountancy office is Administrative Assistant I work closely with all members of staff, as well as being Nick’s PA. I manage Nick’s diary, schedule meetings and I am the first point of contact with all clients who come into the office (how lucky they get to my smiley face when they come in).

What's a fun fact about yourself that your colleagues might not know?

That I’m a fully qualified beautician! I trained in lashes, spray tans, facials ( chemical peels, dermaplaning & high frequency ), nails & massages it was something I enjoy doing when I get a chance to do it.

Outside of work, what are your hobbies or interests?

If I’m not in work, I’m spending my days with my two children on days out making memories I enjoy long walks in Sefton park mainly it’s my little calm space also love a good book.

What's a piece of advice or motto you live by, both personally and professionally?

I can’t decide on one, but I have three favourites.

  • If this was your last day on earth, would you be happy.
  • What will be will be.
  • It is what it is.
Anna Pickstock

Anna Pickstock

Accounts Clerk

What's Your Role At The Company, and What Do You Enjoy Most About It?

My current role at HQ accountancy is accounts clerk, working closely with senior members of the team to obtain knowledge and understanding of accountancy. I specifically work in VAT and accounts preparation. Alongside my role at HQ, I am fortunate to be on a journey to become a Chartered Accountant, attending college regularly to reach the desired title. I enjoy learning new things day to day and delving into different clients to understand the different needs of various industries.

What's a fun fact about yourself that your colleagues might not know?

I have played football for all three of the big teams across Merseyside – Everton, Liverpool and Tranmere. In that time, I did however break both of my ankles (luckily not at the same time). Surprisingly, I am also terrified of aeroplanes, despite the number of times I am on them!

Outside of work, what are your hobbies or interests?

Outside of work if you don’t find my head in a textbook around my exams, you will find me with my family and friends exploring new countries/cities, on some sort of outdoor adventure, in the gym or watching the football (Everton unfortunately).

What's a piece of advice or motto you live by, both personally and professionally?

Fail to plan, plan to fail – while juggling work, exams and life it is imperative that I plan and have structure in everything I do, both personally and professionally in order to succeed. I am also an advocate for the saying ‘life is too short’ – if you want to do something, just go and do it.
Claire Hennesy

Claire Hennessy

Payroll Manager

What's Your Role At The Company, and What Do You Enjoy Most About It?

I have been the payroll manger now for over 20 years, I love my job and all the clients and that everyday is never the same as there is always something different to accomplish

What's a fun fact about yourself that your colleagues might not know?

I don’t like beans on my toast they have to be in a bowl at the side as I don’t like soggy toast lol

What's the most memorable or interesting project you've worked on here?

We opened a payroll scheme for a bar in Liverpool and I stayed up until 2am in the morning waiting on hours in order that the staff where able to be paid on time the following morning

Outside of work, what are your hobbies or interests?

Mr Bruce my dog love him to bits

What's a piece of advice or motto you live by, both personally and professionally?

The seven P’s  prior, planning & preparation prevent piss poor performance
Dave Evans

Dave Evans

Accounts Manager

What's Your Role At The Company, and What Do You Enjoy Most About It?

I have 35 years’ experience specialising in accounts production for a wide range of businesses, predominantly SME Companies where I can have the most impact, as that experience allows me to meet deadlines efficiently and effectively for business who don’t have their own accounts department.
I have gained a wealth experience with a number of local firms and have worked alongside Nick for the past 17 years before becoming his Accounts Manager at HQ Accountancy as we began the journey to build the new practice.

Outside of work, what are your hobbies or interests?

Away from the office I am a life long Liverpool supporter and enjoy following the club home, away and in Europe.
Nick Hughes

Nick Hughes

Managing Director & CEO

What's Your Role At The Company, and What Do You Enjoy Most About It?

I am the Managing Director & CEO of HQ Accountancy, as well as one of our Business Advisers and a Chartered Certified Accountant. That means all roads lead to me and the buck stops here!
What I enjoy is seeing first hand the positive impact we can have on our clients. I’m surrounded by an amazing team and, when they’re used in the right way, they can make a client’s life so much easier!

What's a fun fact about yourself that your colleagues might not know?

I did not set out to be an Accountant. When I left University with a Maths Degree, I wanted to work for the Ministry of Defence. So I filled in an application and sent it off, but took a temporary job in a local accountants in order to earn some money. 23 years later, I’m still waiting on hearing back from the MoD!

What's the most memorable or interesting project you've worked on here?

The most memorable & interesting project has been evolving HQ into a wider service provider and a modern practice. Yes, we provide Statutory Accounting services like we always did, but we’re now Business Advisers, using all of our expertise to guide clients on their business journey, we have a number of amazing strategic partners that provide a complementary service to our own and we’re pushing ahead on digital record keeping methods that will keep our clients compliant & make their lives easier!

Outside of work, what are your hobbies or interests?

For my sins, I’m a long suffering Evertonian, but the least said about that, the better. I’ve picked golf back up again recently, mainly because it’s safer & cheaper that getting a new motorbike. I have two kids who I spend a lot of my time with.

What's a piece of advice or motto you live by, both personally and professionally?

Anyone who knows me knows I love a cliché and I have a few favourites.
 
  • Profit’s not a dirty word.
  • If you always do what you always did, you always get what you always got.
  • No amount of money ever bought a second of time.