IR35 Crackdown
BBC contractor Christa Ackroyd must pay £419,151 in taxes after a tribunal ruled her contract should have been subject to IR35.
Look North presenter Christa Ackroyd lost her appeal covering tax years 2006/07 to 2012/13, with HMRC contesting that she owed income tax and National Insurance contributions on amounts invoiced over the period.
A spokesperson from HMRC declined to comment on this individual case, but said, “Employment status is never a matter of choice; it is always dictated by the facts and when the wrong tax is being paid we put things right.”
HMRC has been examining a large number of freelance staff at the BBC who were paid through personal service companies, this is the first judgment to emerge from a number of appeals and the start of an organised crackdown on IR35 disguised employment cases across the broader contracting sector.
It is essential you understand the risk of operating under a contract for services, and that you have the best support and advice on hand to ensure you are not facing crippling tax liabilities in the future.
Mitigate your IR35 risk
If you are concerned you have IR35 exposure, we provide access to insurance that, if accepted, will cover all tax lialiities arising under an IR35 enquiry.
In the case of Christa Ackroyd, this would have paid out over £400,000. This policy is called Tax Liability Cover (TLC35) and is available here.
IR35 Little known facts
A little-known fact is that employment status enquiries under IR35 will not necessarily be based on the actual contract you have signed.
This may sound perverse but when HMRC review your status they will likely put in place a ‘Hypothetical’ contract, and it is this, based on the actual working relationship evidenced by fact, that will determine status.
A key point to remember, if you are working through an Agent, the contract between the End Client and the Agent will also be examined, often the terms in this contract will be different to those between the Limited company and Agent, and often they will be to the detriment of the IR35 status.
Working practices should clearly mark out your status as Contractor and not as an integrated employee.
Ideally your contract and working practice would also refer to a comprehensive service agreement, whereby you are engaged to provide a specified output, such as completing a given project, as opposed to a specified input, such as working a given number of days or months.
This would be evidenced in the contract by inclusion of key performance indicators, milestones and termination clauses for failure. Anything less than a detailed service clause runs the risk of not giving enough detail to show that you have been engaged for a specific task.
Some nice things to have in a contract would be no mention of “timesheets”. Timesheets suggest payment by the hour, that is to say a contract built around inputs, labour hours, rather than outputs. i.e. a finished task.
A requirement for professional indemnity and public liability insurances would be a marker of being in business on your own account. Employees do not have PI insurance.
An obligation to correct defective work in your own time and at your own cost.
Exclusion of mutual obligations. Mutual obligations occur when, by practice or by contract, it becomes customary for someone to offer you work and you to accept it – i.e. a typical employment situation.
An explicit clause stating that no employment rights are created will not be determinative of employment status, but it has a persuasive and will influence and demonstrates the intentions of the parties to the contract.
HMRC Tool
HMRC have launched a new Employment Status tool, we are encouraging all Contractors to use this tool in conjunction with our contract reviews, for each new engagement or contract extension.
You can find the new HMRC tool here, both you and your client should sign and date the results and hold the output on file together with the contract.
Summary
The whole contracting landscape has changed greatly over the past few years, it is essential you remain aware of the risks and compliance obligations placed on operating a personal service company in 2018.
We offer fixed fee packages for Contractors, you will have direct face to face access to a Chartered Accountant, not a faceless online system operated by unqualified, unexperienced staff. Trying to save a few pounds on your accounting fee could well lead to a catastrophic outcome down the line.
Contact us today to arrange a free consultation and start to address your operational risks.
