From 6 April 2020, UK contractors and freelancers working in the private sector could be affected by changes to the tax system. HM Revenue and Customs (HMRC) is extending IR35 rules to all large and medium companies, having already introduced them across the whole public sector. In practice, this means anyone who provides services to such companies will no longer decide their own tax status.
In the UK, around 5 million people are self-employed. The growth in the number of people who now work for themselves has been driven by an increase in freelancers and contractors, according to the Association of Independent Professionals (IPSE). As a result, there are likely to be many people who are affected by the IR35 changes – and could find themselves at risk of a HMRC investigation.
This is especially the case if self-employed professionals who once declared themselves as “outside” IR35 will now be seen as “inside”. But here are seven ways to avoid that unwanted investigation:
Get your tax returns and paperwork in on time
Until the changes come in, contractors are still responsible for their own tax returns. But one million people missed the 31 January deadline this year. By not getting your paperwork in on time, you’ll be catching the attention of HMRC without needing to.
Sign a contract in your company’s name, not your own
Are you about to sign a new contract with a company who will be affected by the IR35 private sector rules? Make sure it’s in the name of your intermediary or Personal Services Company (PSC). This will help ensure you’re seen as a provider of business-to-business services.
Do what you’re contracted to – and nothing else
As a full-time employee, it’s not uncommon for your company to ask you to do other tasks that don’t quite fit with your main role. But, as a contractor, you’re being brought in for a specific reason. If you deviate from this, it’s harder to set yourself apart from a regular employee.
Don’t be exclusive to one company
Is a company asking you to not to work for anyone else as part of your contract with them? Don’t let it happen – unless it’s a direct competitor. As a self-employed person, you’re free to choose who you work for and when. Exclusivity can suggest you’re a ‘disguised’ employee otherwise.
No perks, no benefits
One of the risks of going self-employed is that you lose the nice benefits that come with working for someone else. But, if you receive sick or holiday pay while working for a company, HMRC could look on you as being unduly controlled and receiving the same benefits as a regular employee.
Seek independent advice
Not sure what’s what with your tax and National Insurance (NI) liabilities? Get expert advice from a tax adviser or accountant. They’ll be able to tell you exactly where you stand and what you must do.
Make the first move
Are you about to be included “inside” IR35 after declaring yourself as being “outside” previously? An HMRC investigation can look back over the last six years, which could be a problem. If you think (or have been told) there’s a risk you owe unpaid tax and NI, you can still avoid a probe by making the first move with a voluntary disclosure. If any penalties are due, they should be lower by doing so.
