If your contract work is caught by IR35, the financial impact on your take home pay can be significant. As a result, we strongly recommend you get a professional opinion on your contracts before starting a new role.
This includes a review of your working practices (the way you carry out your work), as well as the wording of the contract itself.
Scroll down for a list of tax consultancies who provide IR35 contract review and drafting services.
Cost of IR35
A limited company contractor who is unaffected by IR35 rules will typically withdraw a small salary, with most of his income being derived from company dividends. This has historically been a tax-efficient way to operate, although the tax benefits have reduced significantly in recent years.
If a contractor falls within the IR35 net, the income from any given contract will be significantly lower, as his income will normally be taxed as employment income.
Historically this was treated as a deemed payment together with a small 5% allowance to cover the cost of running a company.
For this reason, it is in your best interests to ensure your contracts are not caught by IR35.
* After April 2021, the 5% allowance only applies if the end-client is a small company.
Who decides IR35 status today?
Since the off-payroll reforms introduced in April 2021, responsibility for determining IR35 status in most private-sector engagements sits with the end client rather than the contractor.
Medium and large organisations must issue a Status Determination Statement (SDS) confirming whether the engagement is inside or outside IR35.
Only where the end client qualifies for the small company exemption does responsibility remain with the contractor’s limited company.
IT contracts and working practices
Courts deciding IR35 disputes examine both the written contract and the reality of the working relationship.
To escape the IR35 rules, make sure that both your contracts demonstrate that you are a ‘self-employed’ contractor, rather than merely a ‘disguised employee’ of your client.
Naturally, the terms of the contracts must also reflect the true reality of your contract working practices.
Even where a contract appears favourable on paper, the way you actually perform the role can still determine whether IR35 applies.
For a broader explanation of how the legislation works, see our IR35 beginners guide.
IR35 case law continues to evolve
IR35 status is heavily influenced by tribunal decisions. Courts examine factors such as control, substitution rights and mutuality of obligation when determining whether an engagement resembles employment.
Recent decisions involving broadcasters, consultants and sports officials have reinforced that employment status must be assessed using a multi-factor test rather than relying solely on the wording of the contract.
You can explore the most important judgments and what they mean for contractors in our IR35 case law guide.
IR35 Contract Review Tips
- Make sure that an employment status expert reviews your contract before you sign it. It is notoriously difficult to amend a contract once it has commenced.
- Although most agencies are IR35-aware, some may be unwilling to amend terms in their contracts if they are required. This illustrates why it is essential to use professionals to handle negotiations on your behalf.
- The IR35 rules apply to individual contracts, rather than an individual. A contractor may have one contract which is caught by IR35, and others which are not.
- You can also have your past contracts reviewed to see if HMRC can claim back taxes from you by virtue of your previous contracts falling within the IR35 rules.
- The terms contained in your contracts must actually match the reality of your working situation.
- If you have several contract renewals, have your contract reviewed even if you don’t change client, to ensure that the terms of the contracts still reflect your current working practices.
- Always use a respected IR35 contract review specialist. Many contractor accountants offer free IR35 contract reviews – but are they employment status specialists?
What are the benefits of an IR35 contract review?
An IR35 contract review can provide a number of benefits, including:
- Obtaining an IR35 opinion from an employment status expert: A qualified professional can review your contract and working practices to determine whether you are inside or outside IR35.
- Show that you have undertaken due diligence: If you are ever investigated by HMRC for IR35, having a contract review report can help to demonstrate that you have taken reasonable steps to demonstrate your outside-IR35 status.
- Both your contract and working practices examined concurrently: A contract review will not only look at the terms of your contract, but also how you actually work. An IR35-free contract is worthless if you work in the same manner as an employee.
- Individual tips on how to keep IR35-free: A contract review can also provide you with personalised recommendations on how to avoid working inside IR35.
- Peace of mind: Knowing that your contract has been reviewed by an expert can give you peace of mind and allow you to focus on your work.
IR35 contract review services
Qdos Consulting are the UK’s leading IR35 tax experts. We have worked with Qdos since 2006 and thousands of our visitors have used their services.
They offer several types of review – all offer exceptionally good value.
- Contract Health Check (£84)
- IR35 Contract Assessment (£49)
- Full IR35 Contract Review (£125)
Protect yourself against an HMRC IR35 investigation
Award-winning Qdos IR35 insurance – from just £99 per year. Covers £50,000 of legal costs + outstanding tax liabilities if you opt for TLC35. Contract review service also available.
