Are your consultants IR35 compliant?
If you’re feeling worried about the IR35 tax changes, and nervous of hiring freelance consultants our #AskOscar checklist will help…
Be under no illusion, IR35 is being rolled out. This means that as a business, you’ll face stricter rules when it comes to hiring consultants and contractors. The end game is to make sure consultants and contractors are taxed appropriately when they are, ultimately, working as full-time employees.
We know from experience – working with ambitious growing businesses across Essex, London and Hertfordshire – that consultants and contractors are frequently used to plug skills gaps in specialist expertise and knowledge.
Currently, if you hire a consultant or contractor your business does not have to use PAYE, make national insurance or pensions contributions.
Your business does not have to provide the consultant or contractor with payment protection, including sick pay or holiday pay.
It’s not just business owners who have been able to use the IR35 system to their advantage. Many consultants and contractors have used their status (freelancer or sole trader) to avoid paying tax which they would have normally had to pay.
How the new IR35 rules might affect you as an employer
The new proposed IR35 rules will mean that as an employer you could no longer use consultants and contractors as a tax-free method of staffing. This means that you could face HMRC penalties if it’s thought you have been abusing the new IR35 system.
Is your consultant or contractor IR35 compliant?
To stay on the right side of the law you need to have certainty that the consultant or contractor providing a service to your business is recognisable as wholly independent – and in no way can be classed as an employee according to HMRC rules.
As always, this process is a bit of a maze, but by following our 5 point checklist your life will be made a little easier:
#1 – Check whether your consultant or contractor has other clients…not just your business. This matters, because if HMRC think they’re providing more than 90 % of their work to your business, they’ll effectively be classed as your employee.
#2 – Get things in writing. Update your consultant and contractor contract to ensure it is IR35 compliant. Make sure it reflects the way the consultant or contractor will carry out their duties (working practices). Ensure that a consultant or contractor signs this contract, and invoices you for the work they carry out. We work with trusted HR lawyers who can help, just #AskOscar!
#3 – Don’t micromanage. It’s important that your contract does not imply you have direct control over your consultant or contractor. Nor should they be required to follow any of the working practices required of an employed staff member. Take care to ensure they don’t become too embedded in the business, they should not attend regular team meetings, receive team perks or have any direct reports, for example.
#4 – Tools and equipment. A consultant or contractor should be expected to provide their own tools and equipment. They should not be invited to attend training courses that employed teams are expected to complete. Ultimately, remember that they are wholly responsible for their own running costs, equipment and materials.
#5 – Public face. Check whether your consultant or contractor has the following… a website, business stationery, professional indemnity insurance and are they VAT registered?
Finally, perhaps use changes in IR35 to re-evaluate the reliance your business has on self-employed consultants and contractors. In times of change, growth or innovation there’ll always be a skills gap within any SME. But a consultant or contractor is not the only option when it comes to accessing specialist knowledge when its needed.
Your business could consider sourcing the skills from within it’s existing team or re-train staff to be able to deliver the project.
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About Oscar Fairchild:
Oscar Fairchild (incorporating Redwood Clarke since 01.09.18) is an ACCA chartered and certified and AAT qualified accountancy, financial consultancy & bookkeeping practice with offices in The City of London, and Billericay, Essex. Offering a wide range of services including Self-Assessment Services, Annual Returns, VAT Returns, Credit Control, Payroll, Auto Enrolment Pension and Management Account services to high growth businesses and licensed London taxi drivers across London, Essex and Hertfordshire.