A brief introduction
IR35, for those unaware, is a murky bit of legislation aimed at trying to reclaim tax HMRC perceive as being incorrectly paid by contractors who are operating in a manner that could be termed as “Disguised Employment” – That is to say if you took away the limited company from the contractor, would the services they perform, and the manner in which they perform them be consistent with that of an employee. If the answer is yes then the contractor in question could end up owing HMRC a not inconsiderable amount of money.
As mentioned, IR35 is often perceived as being quite an unclear bit of legislation that ends up catching out a number of contractors due to leading questions being asked based on poorly worded clauses in the contract. If the contract is poor from an IR35 point of view, then it can cause a whole mess of problems should HMRC investigate.
This is where an IR35 contract review comes in to play.
IR35 Contract Reviews. What are they?
In a nutshell, an IR35 contract review is a detailed look at your contract performed by an individual who has a great deal of experience in dealing with IR35 in particular. Such a review will take a look at each portion of your contract, and assess each and every clause for its overall impact on your IR35 status.
Each review will consider the three key areas of a contractors IR35 status, and the multitude of lesser points. To name a few (but by no means all)-
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Substitution
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Supervision, Direction & Control
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Mutuality of Obligation
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Financial Risk
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Operating a Genuine Business
After the contract has been picked apart by the reviewer, they will then compile the report to the contractor highlighting the key problem areas, and what needs to be improved. This varies from simple wording changes to whole clauses being included into the contract. The aim of the review is to ensure your written contract is as rock-solid as possible should HMRC decide to turn their gaze in your direction.
Best of all, this is done entirely confidentially. Should your contract fail the review and be deemed to fall foul of IR35, it would be kept entirely between yourself, and the reviewer.
But what about working practices? Aren’t they more important in the event of an enquiry?
Technically, yes. Ultimately, your IR35 status will be decided on your working reality which may not mirror the written terms of your contract. As mentioned previously however, an IR35 enquiry starts with the written terms – If the contract is not compliant, HMRC will ask all sorts of problematic questions around it which will give them more fuel for the fire when it comes to the working practices. At the end of the day, the less questions HMRC ask around your contract, the better off you will be should it come to the point of defending your status.
OK, I’ve decided to have a contract review, and I’ve received the report, what now?
At this point, what you do with the information is entirely up to you. We’d generally suggest that you approach your agency / client (whoever the contract is between) to make any necessary changes, then get the contract re-reviewed by the assessor as part of the service, or alternatively you can just file away the report should it be considered a pass to prove that you have performed your due diligence in the event HMRC do enquire as to your IR35 status.
There’s also the option of giving the IR35 consultant a phone call or sending them an email to ask any questions that are worrying you in respects to IR35, or your contract in specific.
Finally, you could also always opt to purchase some IR35 insurance to give you that extra peace of mind.
In Conclusion –
An IR35 contract review is a vital piece of the puzzle when determining your IR35 status. If you’re at all concerned about your standing in relation to IR35, a very good starting point would be to have your contract reviewed as this generally gives you a much better understanding of IR35 in general, and more importantly your current IR35 status. As always, if you have any concerns you should seek professional advice.
This article was provided by Matthew Tyler of Qdos Contractor. Qdos are known as one of the leading providers of IR35 services and advice in the contracting industry.
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