Although it has been around for some time now, there is no doubt that IR35 is a complex subject that many contractors are still trying to understand. If you fall inside IR35, it will end up being very expensive, as you will be paying thousands of pounds to the taxman. The good news is you can avoid IR35 and save a lot of money if you take the right legal advice.
In fact, you should always take professional legal advice if you are reviewing your IR35 status or if you are in dispute with HMRC due to your tax status.
When it comes to creating a contract for contractors, agencies and clients, the best practice it to get legal advice to ensure their interests are protected. As a result, they do not risk legal challenge from HMRC, the contractor, or any other agency.
Neither the agency nor the client wants to be slapped with a huge tax bill for hiring the services of a contractor after an HMRC inspection. By getting the contract vetted by a legal professional, agencies and clients ensure that the tax burden falls on the contractor. If the agency or client does have an HMRC inspection, it could end up involving you. You may need to answer questions about your contract, and in the worst-case scenario, HMRC could start an enquiry about your IR35 status.
As a result, it is important that you, as a contractor, seek legal advice. It will ensure you protect your interests and don’t fall inside IR35 due to certain clauses and terms in the contract.
If you do the calculations, you will realise that there is a massive difference in your net income based on your IR35 status. Depending on your contract, the difference can be anywhere from £2,000 to £10,000 per annum. You can easily calculate the tax liability on your total income by using the IR35 tax calculator.
If you want to ensure that your net income is not adversely affected, you should not hesitate to seek professional legal advice. Remember, being inside IR35 will have far-reaching effects. You will have to pay more taxes, and if HMRC initiates a review of your IR35 status, you will have to pay professionals thousands of pounds to defend you.
As a contractor, you should be prepared to be inspected by HMRC at any time. Remember, if the taxman decides to investigate your business, it is because they have found a good reason to do so and expect to find issues.
As a part of the investigation, HMRC will challenge your tax status and they have the right to go back as far as six years. That is why it is essential to ensure your IR35 status is correct. Taking legal advice allows you to protect yourself and your status. If you decide not to take legal advice, you will not have anyone protecting your interests. Tax laws in the country are complicated, and a layperson has little chance of understanding them and using that knowledge to represent themselves in the court of law. In this scenario, HMRC is likely to win the review even if you are in the right. Don’t let this happen to you.
There are few instances when it makes sense to seek legal advice from a professional. These include the following:
When you consult a professional versed in tax laws, you will receive the correct information and guidance, thereby helping you pass IR35 and save a significant amount in taxes.