At Emulous Accounting, we have many years of experience in providing accounting and tax solutions to the contractor and freelancer market.
We use the latest cloud accounting software, which allows you to have the information needed by you at your fingertips anytime. We can also arrange an IR35 review service providing an additional piece of mind to you.
What is IR35?
IR35 is a piece of tax law that seeks to counter tax avoidance by workers who supply their services through an intermediary such as a company, however, would be employees if we were to remove the intermediary.
Why does it matter?
- As an employee income tax should be deducted at source, however, if funds are paid to a company by an agency these are normally paid gross.
- Class 1 national insurance would be payable by if an individual is an employee, however, this would not be the case if the fund is paid directly to an agency.
- An employee would not normally register for VAT although a contractor may choose to if supplying their services via a limited company.
- The same expenses may not be deductible for the director of a limited company as are deductible for employees.
- An individual who is an employee will have greater protections under employment law.
- An employee would not be able to withdraw dividends at lower rates of tax as a shareholder/director in a limited a company would.
How is employment status determined?
There is no hard and fast rule, however, the courts in the past have looked at a number of factors to determine employment status such as:
- Mutuality of obligation
- Right of control
- The use of one’s own equipment
- Financial risk
- Right to terminate a contract
The list above is by no means exhaustive but does include some important considerations.
Here at Emulous Accounting, we are committed to being more than just an accountant instead we aim to a be a business partner and someone you can rely on to take care of your accounting and tax needs providing you complete peace of mind.
We offer services for contractors acting as sole traders, as well as trading via a limited company.
Emulous provides accounting services to contractors and freelancers throughout London and the rest of the UK. We have all-inclusive fixed fee accountancy packages that comply with all filing requirements of your company or business.
Case law on IR35 and relevant considerations
Christa Ackroyd Media Ltd
This company was facing a 420K PAYE and NIC bill. The case was won by HMRC and considered the case of Christa Ackroyd.
The factors considered were as follows:
- She had a 7-year contract with BBC.
- Her contract allowed her to work other places apart from the BBC.
- There was no substitution clause in her contract.
- She was economically dependant on that contract as 90% of her income came from that contract.
Christa fell foul on 3 key features HMRC consider when identifying if someone is inside or outside IR35. These factors were mutuality of obligation, substitution, and control.
Jensal Software Limited v HMRC
This case considered an IT contractor. The factors HMRC considered, in this case, were as follows:
- Substitution clauses existed.
- There was an element of financial risk because the contractor was expected to rectify substandard work.
- There was no mutuality of obligation.
- He provided his own equipment.
This case went in favor of the taxpayer.
At Emulous Accounting, we are happy to undertake a free of review of your contract to offer an opinion of your IR35 position as part of our contractor accounting package.
HMRC have a tool which provides an indication of your IR35 position. Please use the following link to access the calculator.
For more detailed information and to arrange a free consultation, please contact us.