Anyone who knows about IR35, could you help me please?

[BabyDubsEverywhere]

My husband and I have a limited company in the motor trade, we both work in the business, hes the tech, I'm everything else. He has just been offerd a full time job with a well know company in managment, tomorrow morning he talks terms for the contract. I was wondering if we would be able to ask them to pay the company for his time rather than him as an employee.

Obviously this will save us a fortune in tax, so i assume we cant lol.

The business will still be running, with various sources of income, although this would be the largest single business income. There is a web based income, and commison from a product sales, income. plus he will still be doing restoration work for the public and odd mechanical/service work as it arises.

Anyone know if its worth us trying this?

TIA

According to my DH, if this is a position that he could be employed in, be it full time or part time, then it falls under the IR35 legislation. Under I35 you would pay loads more tax than if he was an employee and lose out of all the benefits of permanent employment.

:( oh well, thanks for replying.

If the new emololyer contract with your company, the contract would have to be IR35 proof - ie not a contract of employment. Key things include a subsitution clause (ie could your husband subsitute himself ), how much say your husband has over where and when he works, does he provide his own equipment for the work. Things like an entltlement to holiday pay would point to employment......

It is possible for a limited company to have some work which is inside and some which is outside IR35. Best get your accountant to give the contrac the once over before it is signed - they would know whether it was likely to fail IR35.

Whether someone is an employee is determined by HMRC by looking at the facts of the relationship (i.e. who is in control), rather than whatever is said in the contract.

Things HMRC would look at include:

• whether the contract is permanent
• who decides working hours/holidays
• can the contractor choose where he works?
• does the contractor risk his own money?
• can the contractor send someone else to do the job?

It's not really relevant that your business will still be going (as it is entirely possible to have 2 jobs at once).

I don't think it matters that the job could be filled by an employee - it depends how your DH is filling it ie as an employee or as a contractor. At my work we have employed people sitting next to self-employed people who are doing identical jobs just on a different basis

HMRC have a whole list of criteria but off the top of my head some things that would indicate he is not an employee are;

he could substitute someone else to do the work
he uses his own equipment to perform his duties
it is not his companies sole work
no holiday entitlement
short term contract

For the employer, they risk an employers NI backlog and penalty if HMRC decide he is an employee, and they may be unwilling to go through the hassle.

I have seen HMRC enquire into this before but it did tend to be people who had worked at the place for a number of years

I thought that if HMRC decide that any contract had failed IR35, then the limited company of the "employee" paid all the extra PAYE, including employers NI.

I

No - I've had this at work - HMRC tried to claim that the employer was complicit effectively. Was all very messy and HMRC ended up having to back off but a less confident company might not feel up to the fight

But yes - if HMRC decide not to go for the employer then it is the 'employees' liability

hmmm, he would be based in one centre, (they have many) and would be the manager of the centre, so no equipment, other than a pen using their systems etc. The business would have other incomes/work. Some contractual, some private. He is also a sales agents for a cleaning product. (through the business)

We are discussing contracts tomorrow, they might not want to get involved in this, it is messy etc.

This wont work will it. clutching at straws at the moment i think.

you need to get an accountant/tax adviser involved - they will be best paced to advise and ensure it is all done correctly

There is some good advice here, and some stuff that is wrong. In particular, the comments made by RancerDoo and diggingintheribs that relate to the employment/self employment tests are irrelevant - the contract here will be between two companies and a company cannot be an employee. That is why IR35 exists, and that is all that is relevant here.

Also, even if the contract is trapped by IR35, you do not have to pay 'loads more tax' than you would as an employee. It is true that there will be Class 1 NI to pay on the Deemed Payment, but the 'employer' will save an equivalent amount so the monthly payments should be increased to account for this. As for tax, there will be 5% less to pay because of the 5% expenses allowance, and also the £7,475 which you are presumably already paying can come off the total. But the savings won't be huge, and probably not worth it compared to the benefits of being an employee.

If however arrangements can be made that are not trapped by IR35 you are right, the tax savings could be significant. But the contract will have to be very different and there will be little incentive for the 'employing' company to go for it.

If you do want to go down this route, you are going to need expert IR35 advice: ask your accountant what experience they have in this area, or if they use a specialist like Accountax.

Oops, that first paragraph should read:

There is some good advice here, and some stuff that is wrong. In particular, the comments made by RancerDoo and diggingintheribs that relate to the consequences of the employment/self employment tests are irrelevant - the contract here will be between two companies and a company cannot be an employee. That is why IR35 exists, and that is all that is relevant here.

Sorry, Mranchovy: why are the tests irrelevant?

As I understand it IR35 exists to catch disguised employment relationships. Therefore a contract between two companies can be caught by it if HMRC determines that the relationship is, in fact, one of employment, regardless of whether the party providing the services does so through a company. The terms of the contract as to control are therefore crucial.

I'm sure that when I have heard of cases of HMRC reviewing contractors' status, some of those contractors have been working through intermediary companies that they owned.

No, the relationship cannot be determined by HMRC to be one of employment because a company cannot be an employee. IR35 tests whether the relationship would be one of employment if there was a contract between the worker and the engager, and if HMRC determine that it would, it imposes a complex tax and NI regime on the company that is engaged to do the work.

Contrast this with a 'normal' employment status test where there is a contract between the engager and the worker, and the question is whether that is a contract of service (ie employment) or for services (ie self employed). If HMRC determine that it is employment they will persue the engager for the PAYE that they determine should have been deducted. These consequences cannot apply in an IR35 situation because companies cannot be employees and their earnings are not subject to PAYE, and that is why I said the consequences (of an employment status test) are irrelevant to an IR35 situation.

You could certainly try and negotiate with the firm to offer consultancy services, in which case you would then sign a contract for services with them. Your company would then deliver those services to the client based on an hourly or daily rate.

Others have mentioned the IR35 legislation. This is something we (our website) knows something about, having followed it since inception, written whitepapers on the topic, and recently advised the Office of Tax Simplification at HMRC on future direction.

If your husband is investigated and HMRC consider that the relationship is one of "disguised employment" then taxes will be due as if he was employed by them - all the PAYE, NI etc. This is determined by HMRC by casting aside the actual contract and then forming a "notional contract" based on the actual facts they ascertain by interviewing the client and yourself. There are three main areas to consider in IR35 cases - subsitution, mutuality of obligation, and control. Then there are secondary factors like risk, equipment, being in business on own account, and so on. You can challenge them on any negative outcome they reach, but the best form of defense is to get all your IR35-ducks in a row before and during the contract.

You can start by taking our free online IR35 test:
www.contractorcalculator.co.uk/IR35_Test.aspx

and then by reading the many guides on IR35 we have on our site:
www.contractorcalculator.co.uk/IR35.aspx

If you think you are at risk then speak to a specialist in IR35 matters, who may be able to help you avoid it. There are a few experts who have contributed to guides on our site who you could consider.

Your first stop though is to see if the potential employer would be happy for them to be a client of your firm and for your husband to contract with them as opposed to being on an employment contract.

Regards
Dave Chaplin
CEO, ContractorCalculator