Are you actually a disguised employee?

When IR35 was brought in back in 2000, there was widespread misuse of personal service companies for tax purposes

The legislation was designed to target those who were working as an employee for a company but through their own so that they could get the tax and NI benefits. Of course, this crackdown also had an effect on the genuine personal service company contractors who now have to prove that they are not a ‘disguised employee’ to the Revenue in order to keep these benefits that they have a genuine right to.

With the rules to the legislation a little hazy, it leaves contractors uncertain of their status. There are a number of basic tests which are used such as whether you have the right to provide a substitute, how much control you have over your work, whether you have the ability to walk away from the contract, whether you use your own equipment, whether you take a financial risk or not and so on. Overall, the Revenue will be looking to determine whether you are acting as a genuine business or not, so they may also look at whether you can run multiple contracts at the same time, any marketing efforts and differences between you and the employees at your end client’s site.

If you are operating as a genuine business, it is likely that you will naturally be ticking the boxes in the day-to-day running of your business, however, there are always grey areas and exceptions or it may be that your written contract is not as robust as you thought or your end client is not entirely in agreement with the reality of your situation. Even genuine contractors can live on the blurry line.

If, after proper assessment, you find that you are ‘inside IR35’ or classed as a ‘disguised employee’ of your end client for that particular contract, it is important to speak with your accountant with regards to paying a deemed salary. This is paying tax and NIC as if you were an employee (minus an expenses allowance).
It is not ideal for most limited company contractors to be paying a deemed salary on all their contracts so if this is happening, it may be worth considering a change in trading style.
It is also important to remember that being ‘inside IR35’ is not illegal. You are not going to go to jail over it, but if you fail to pay the relevant tax and NI for your employment status, the financial consequences can be dire. In the event of an investigation, unless you decide that you can do it yourself, you will not only need representation to defend your case, which can be costly, but if you were to be ultimately caught by the Revenue and deemed a disguised employee, you would be required to pay the backdated tax and NIC for the entire period in question which could be up to six years plus interest, and penalties which are based on the perceived intent of your mistake. Having proper assessments of your status will reduce these penalties.

Qdos offer a variety of IR35 services including status reviews, insurance policies and professional representation. We are experts in the field, successfully completing over 1300 cases and handling over 500 status reviews every month.