Your tax support in the UK
NES Global Talent has partnered with leading employment tax specialists – John Hill & Associates to help demystify your tax requirements. Through this partnership, and because we are passionate about providing you with helpful services, we have developed the opportunity for our contractors to receive an ‘initial tax consultation’ with John Hill. Please note subsequent consultations will be subject to entering into a contract directly with John Hill & Associates and agreement of scope of work and fees.
This initial tax consultation is completely free and is designed to help you clarify any issues you might have or to ask any tax related questions. To simplify your tax requirements, we encourage you to take full advantage of John’s services:
- Employment taxes & PAYE/NIC investigations
- IR35 and MSC legislation
- Tax dispute resolution & management of HMRC enquiries
- Income tax & capital gains tax mitigation
IR35 and MSC legislation
In April 2000, the Government introduced the Intermediaries legislation known as IR35. The aim of the legislation is to eliminate the avoidance of PAYE and NI through the use of intermediaries, such as service companies, in circumstances where an individual contractor would otherwise for tax purposes, be regarded as an employee of the client; and for NICs purposes, be regarded as employed in employed earner’s employment. Full details of the legislation and useful guidance can be found on the HM Revenue & Customs website.
In 2007, in an effort to further combat the deemed extent of tax avoidance, the MSC legislation was introduced which made it more difficult for organisations to set themselves up simply to provide a limited company solution.
Working with IR35
The legislation does allow individuals who are genuinely in business on their own account, to supply their services through a limited company and operate outside of the IR35 and MSC rules. In doing so freelance contractors are able to benefit from favourable tax arrangements.
However, those favourable arrangements are negated if the IR35 rules are deemed to apply. Despite the introduction of the MSC legislation, HMRC still believes that there is a substantial degree of tax avoidance among contractors and in 2010/11 two court cases went against the taxpayer – Dragonfly Consulting Ltd and Larkstar Consulting resulting in many thousands of pounds in unpaid PAYE and NIC. In the recent case of JLJ Services v HMRC, the court decided that although the taxpayer worked outside of IR35 for the first three years of his contract, he was caught by IR35 fort the final four years because, by this time, he had effectively become part and parcel of the client’s organisation.
What is important?
The recent cases highlight that whilst it is important that the contractual terms between contractor/agency and agency/client recognise that Limited Company contractors operate on a freelance basis, it is not possible to solely rely on these contracts to demonstrate you are outside of IR35. The actual working practices between the contractor and client for your assignment must be taken in to account.
For a freelance contractor not to be ‘deemed employed’ for tax purposes, it is necessary to address the key status indicators used by HMRC to determine that you are not employed. These include:
The right to send a substitute worker is a strong indicator that an assignment may be outside of IR35. However, it must be a real right. Ideally, the right should be an unfettered one, but, at the very least, the client must be able to confirm that they would accept a substitute worker and that there would be a real opportunity for this to happen. If the right cannot be exercised in practice, it will be ignored.
Mutuality of Obligation
Your Limited Company should not be obliged to accept any work beyond the scope of the assignment for the client and the client should not be obliged to offer any further work. Generally, both you and the client need to be able to terminate the engagement relatively easily.
Supervision and Control
As a freelance contractor, you must be allowed to use your professional judgment in deciding how to deliver the services, and whilst the client will identify and give direction as to the required output, they should not instruct (supervise or control) you on how to go about doing the work. You should also be clearly identified as a contractor and not be seen as part and parcel of the organisation.
As a freelance contractor, you should have a greater financial risk than someone who is an employee of the client. This might be through fixed fee income or from the risk that you may not be paid for the work done or that payment might be delayed. This is one of the reasons why it would be appropriate for your Limited Company and yourself to ‘Opt-out’ of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 prior to the commencement of an assignment.
The Agency Workers Regulations (AWR)
Although the AWR rules do not, by themselves, define an employee for IR35 purposes, a contractor who is within the AWR may be viewed by HMRC as more likely to be subject to IR35.
I need more help and advice...
NES Global Talent is keen to ensure its contractors obtain good professional advice in respect of their assignments and IR35. In the light of recent IR35 cases including Dragonfly Consulting Ltd, Larkstar Ltd and JLJ Services Ltd which all resulted in additional PAYE/NIC liabilities for the contractors, you may wish to consider having an IR35 Review.
NES Global Talent is keen to ensure its contractors obtain good professional advice in respect of their assignments and IR35. We have agreed a discounted rate for our contractors with Employment Tax specialists - John Hill and Associates. An IR35 review will not guarantee an IR35 status but it will provide essential advice on the likelihood of the contract being subject to IR35. Importantly, HMRC have confirmed that even if they subsequently regard a contract as being caught by IR35, they will not levy a penalty if a professional review has been undertaken so the costs of regular reviews will always be significantly outweighed by the potential savings in penalties.
You may wish to consider contacting them to discuss an IR35 Review of your assignment. Their telephone number is 01704-870-148 and email address is firstname.lastname@example.org. When you contact them, please mention NES Global Talent and you will benefit from a 25% discount. The Review will therefore only cost you £75 plus VAT.
John’s firm is also able to assist with HMRC IR35 enquiries and investigations. John recently assisted an IT contractor who had worked for one large client for nearly six years and HMRC deemed each contract to be caught by IR35 potentially leading to a settlement in excess of £100,000. John was able to use his experience as a former tax inspector and tax director to reach agreement with HMRC to withdraw their claim.
Disclaimer: NES Global Talent provides taxation and legislative information for general guidance only. You should neither act, nor refrain from acting, on the basis of any such information. You should take appropriate professional advice based on your particular circumstances. The application of laws and regulations will vary depending on particular circumstances, and laws and regulations change on a regular basis.
NES Global Talent does not warrant or represent and is not responsible for the quality, fitness for purpose or otherwise of the financial advice provided by any service provider. NES Group does not accept any liability for the financial advice or acts or omission of any service provider.