subject: Ir35 Its Due To Be Reviewed, But Dont Ignore It [print this page] Although it has been announced that IR35 is due to be reviewed by the Office of Tax Simplification, its essential that contractors should not ignore the rules.
Many predict that the review will be the demise of IR35 which has led to many contractors playing down the importance of IR35, meanwhile, it has been reported that the number of IR35 investigations has in fact increased.
The Office of Tax Simplification (OTS) has stated that the review will be a long process with alterations not coming into effect until 2012 and it is important to note that they have not guaranteed it will be abolished.
Currently, IR35 is a bit of a grey area; however there are a number of elements you can use to ascertain your status. Below, we have highlighted the three main elements to consider;
Control:
The contractor must not be supervised or controlled by the client as if he/she were an employee. Where a client can move the contractor from job to job due to changing priorities, then there will be a right of control over what is to be done and this is a strong indicator of employment.
The location of the services may be decided by the engagement itself, but it is important that this is agreed upon. It is always beneficial for IR35 compliance if services can be provided from the Service Companys own offices, even if it is for a relatively small percentage of the time.
The contractor should not have set working hours that are dictated by the client; the contractor would be expected to arrange his hours to suit the task and his own convenience.
Right of Substitution
A Service Company enters into a contract to provide a service rather than personal skills and should be able to provide a substitute or engage helpers to provide the service. An employee would provide his services personally.
Example: John Smith is contracted to work at a telecoms organisation, but unfortunately falls ill. His Service Company should then be able to offer a substitute to replace him for the remainder of the contract. If there is no substitute, its a strong indicator of employment and thus within IR35.
Mutuality of Obligation
An employer will try to make sure that their employees have a continuous supply of work and will also expect the employees to carry out the work when it requires. A Service Company will do the work it has been contracted to do and will complete the project with no expectation of further work. When work is regularly provided and accepted over a period of time, HMRC may take the view that employee status has been created by custom and habit. A long notice period (say exceeding 30 days) is an example of this.
If you would like to view the other elements that must be considered when ascertaining your IR35 status click here Umbrella Company
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by: Alex Askew
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