Company contractors in the UK are recommended to hire reputable umbrella companies. According to the tax advisory consultancy firm Qdos Contractor, contracting professionals need to take due care in relation to their contracts. This is important to avoid surprised tax liabilities in case of an IR35 audit by HM Revenue and Customs (HMRC).
Steps for Contracting Professionals to Avoid IR35 Trouble
Qdos Contractor has outlined a number of steps for the contracting professionals to avoid unexpected liabilities.
- Qdos has suggested that the contracts should be investigated by an IR35 expert. The expert should be recognized in the off-payroll working rules. This is important as the verdict of the expert will serve as an evidence in case HMRC conducts an investigation. This is a cautionary step that should be taken since recruitment agencies generally issue standardized contracts that may not reveal details of the work. An expert will identify issues and recommend careful rewording to avoid being inside the IR35. The expert may also recommend additional clauses to avoid any issue.
- The second advice by the tax advisory specialist is that contractors should not rely only on contract terms to determine tax status. They need to carefully review the actual working practices to determine the employment status.
- The actual working arrangements will be scrutinized in the event of a formal HMRC enquiry instead of the terms of the contract, which includes interview with the end-client. So, it’s important to directly communicate with the end client regarding the IR35 status.
- HMRC inspector will generally explore different employment status tests. These include Mutuality of Obligation (MOO), the degree of control, and the right of substitution. As a result contractors should assess the employment status in the light of these tests.
- Lastly, contractors need to have their contracts reviewed by a professional. Also, they need to remain in communication with the end client regarding employment status. This will show to HMRC officials that due diligence was taken in finding out the tax status. Not exercising care in this regards to IR35 status could result in severe penalties from the UK tax authority.
In case contractors find out that their work is inside IR35, Qdos suggest that they should work the remainder of the project with a reliable umbrella company that will automatically deduct tax and NICs on a PAYE basis. However, it’s essential to not panic and take actions to reduce the tax implications.