Haroon Khan Thoughts

Many contractors think that they can save themselves from IR35 investigations by simply closing down the company that’s causing problems. The common notion is that closing down a company will mean that HMRC doesn’t have the power to investigate when the company isn’t there any more. However, there are some problems even though this escape from IR35 seems somewhat logical.

The fact is that when you apply to you apply with Companies House to strike off your company, the Registrar will take up to three months to remove the company from register. Meanwhile, the Registrar will be obliged to inform all interested parties of such striking off. If there are no interested parties and no pending litigation, the Registrar will proceed with striking off procedure and the company will start to exist. Since there is a three-month period and a notice is sent to all interested parties, there is rarely any chance that HMRC will not react and investigate your company affairs before Registrar could close it down after three months.

The Registrar is obliged to publish notice of a company’s request for striking off. This notice is published in official gazette. The parties that have some kind of interest or want to object this stirking off will be able to raise their concerns after seeing the notice.

The official gazette for companies registered in England and Wales is London Gazette the official gazette for companies registered in Scotland is the Edinburgh Gazette. The Belfast Gazette serves as the official gazette for companies registered in Northern Ireland.

Since the Registrar has to wait for 3 months before finally striking off the company, HMRC can react within this time. HMRC can even restore a company even when it has closed if there are PAYE arrears that still need to be inquired. However, in practice HMRC doesn’t intervene after the Registrar strikes off a company after 3 months have passed since the initial application by the company directors. Historically, HMRC has never taken this route.

HMRC can recover PAYE debt after it satisfied two conditions. The first condition requires that PAYE arrears exist due to an error made in good faith. The second condition requires HMRC to establish that employee has received relevant payment despite having the information about employer’s failure to deduct tax from taxable payments.

There were 192 inquiries about IR35 status in the last tax year (2013-2014) and taxman yielded a total of £430,000 from these inquiries. If we compare these stats with the previous yields, we will clearly notice that the number of inquiries drop only by a little while the yield drops by half from 2012-2013. Overall, IR35 inquiries brought in 61% less yield that the yield last year.

Despite changes happening to IR35 legislation and reduced output for the taxman, the IR35 is going to be with us for a quite a long time. So there is no better way out than to prepare for it by improving your prospects so that you can face the situation if HMRC come knocking doors of your business.

If you think you are outside IR35, be ready to prove it

If you think that you are outside IR35, you should be ready to prove this fact. You will need to collect different type of evidence that will show that your business is outside IR35. Additionally, you can have your contract reviewed from a professional so that you can include the review in your business practices. This will help you follow the right practices and you will be able to collect evidence that will be handy when HMRC comes knocking at your doors.

If your contract review turns out to be positive, you should keep its record safe so that you can include it in your evidence in case of an HMRC inquiry and prove that you are a genuine business.

A business insurance can help

When HMRC investigates your business, a business insurance is going to prove a great help. You should consider taking out a business insurance especially the personal indemnity insurance and you will have another factor on HMRC’s business entity test in your favor.

Although HMRC has always dismissed the factor that business insurance contributes to determine IR35 status, the new legislation has changed this scenario. Now a business insurance is as much a factor of business entity test as much is the substitution and contract review.

Business insurance doesn’t cost a fortune. You can buy full range of policies around £20 a month. Insurance at this cost shouldn’t be a problem especially when you weigh the cost against the benefits of taking out an insurance.

Substitution and personal service

Substitution and personal service is one of the most important factors in IR35 tests. The right of substitution implies that a contractor can provide a reasonable substitute to provide services. Even the new Agency Worker Regulation emphasis that contractors and independent workers should establish the fact that their contract is genuinely independent.

To establish your right of substitution, you should send a substitute as a suitable replacement for a day’s work. This isn’t going to cause any problems but you will have a very strong evidence that your contract is independent.

Company stationary can help you clear IR35

As insignificant as it may sound, having your own business stationary can make a huge difference how IR35 sees your contract. You can either purchase of make your own stationary. Even a judge in hearing a case stated that having business cards and company stationary was a major factor in determining the nature of contract. To make sure that you have all the possible evidence in this regard, you can simply do the following.

Have a business website

Buy or make company stationary

Use company letterheads

Collect evidence for showing nature of actual relationship with your client

A pension contribution is usually considered an allowable expense as long as the contribution is made to a registered pension scheme and the purpose of such payments is directly trade-related. To put simply, if these contributions are part of the a renumeration package to be paid as part of the trade, it will be allowable expense.

It is important to note that the whole part of the renumeration package is exclusively paid for the purpose of employer’s trade. In case the total amount paid for renumeration package doesn’t simply include pension contributions, then HMRC will consider looking at the situation.

In some cases, an employer can make increased pension contributions and still be able to claim it as allowable expenses. This is typically a case when a pension scheme is underfunded. The employer may decide to make increased payments and still be safe from HMRC. HMRC will check contributions between different periods and investigate the history of contributions.

Renumeration paid to a close fiend or a relative are accepted by HMRC when there is a ground to prove that these were paid wholly and exclusively for the purpose of the trade. These contributions will be compared against the contributions paid to employers who are unconnected but perform similar duties and offer similar value to the company. If there are no such employees in the company, then HMRC will make comparisons of contributions to the third parties who are performing similar duty in a similar setup. HMRC will do this to determine whether or not the contributions exceed the reasonable amount paid as reward for the work done. In case a friend or a relative is paid higher contributions compared to the other employees with similar tasks or third-party employees, HMRC will doubt such payments and doubt that these payments aren’t being made for trade purpose exclusively.

Many contractors take financial risks when operating through their limited companies. Similarly clients also take risks and it sometimes affects contractors as they are unable to recover payments for work completed. However, majority of them don’t realize that they have a great opportunity to grab as many as 14 points for the business entity test.

Taking a financial risk indicates that you are operating as your own business. It essentially demonstrates the fact that your business can pass the business entity test. Realizing this fact, HMRC has alloted 14 points that you can score when taking a risk as a business.

The business entity test is designed in such a way that any independent contractors who take a financial risk can get 4 points for showing their financial responsibility to correct faulty mistakes. Any contractor taking a financial risk should ensure that he has enough evidence to support his claim for these points. The evidence may come from a clause in the contract stipulating responsibility of correcting your mistake in case of a financial risk. Additionally, details of what can possibly go wrong and how you can fix it will strengthen the evidence.

You get 10 points when your client takes a risk and doesn’t have sufficient funds to pay you for work completed. When you are working as a contractor, you take the risk of being unable to recover payments for work done in situations when your client doesn’t have enough money to pay you for some reason. This is a risk that comes with being a contractor. If your client has taken risks and they have disabled him from paying you due to lack of funds in the past 24 months, you can use this to your advantage and get 10 points in the business entity test.

When you are unable to recover payments, it shows that you are in business at your own. This distinguishes your nature of work from employment and therefore helps you stay clear of HMRC. Here is what you are going to need in order to establish your claim for these important 10 points.

You should be able to establish the fact that you were unable to recover payments by showing write offs in accounting records. If you keep your records proper, you should easily find these records.

If you had been in a situation when you were unable to recover payments, there should be some sort of email or snail mail communication between you, the client and the intermediary. You should be able to produce copies of such communication to further strengthen your claim to 10 points.

If you are planning to own or rent a premises that will be used specifically for running your business, you should not worry about IR35 legislation as long as you can provide sufficient evidence. Your business will also get 10 additional points on Business Entity Test that will help you stay clear of IR35 legislation.

In order to take the 10 points from Business Entity Test, you will need to prove evidence to prove that you are using premises to run business only and that it is separate from your home and client’s premises. To establish your claim, you are going to need address of your business premises along with lease documents and utility bills that you have paid.

To demonstrate that your premises is separate from client’s premises and your home, you are going to need to need your home address and your client’s address.

It is important to note that any of you or your business can own or rent the premises. When you or your business owns or rents the business premises, it is quite evident that you are a contractor and not an employee as an employee would have no reason to rent or own the business premises. It just shouldn’t be connected with your home or client’s premises in any way since it will render evidence in favor of you being an employee.

Owning or renting a business place to conduct your business doesn’t put you outside the IR35 as such. All it does it give you an advantage and 10 points that can help you pass the business entity test. If you can rent or own a place to dedicatedly operate your business from, you should go ahead and do that. This will at least prove to be a positive factor and your chances of being IR35 immune will increase.

There are scenarios when you are working from home and may never have to visit client’s site during the entire period of your contract. Many contractors who are working on this type of a contract may think that they don’t have to worry about IR35 since they don’t ever go to client’s site, which makes a clear case of control. But being in control doesn’t make you exempt from IR35 as there are still substitution and mutuality of obligation that you will need to demonstrate in order to stay clear of IR35.

For better understanding what all these terms mean, I will elaborate each one of these starting with substitution.

Demonstrate substitution

Substitution is the right of a contractor that enables him to send a substitute to provide services. The substitute acts on the behalf of the original contractor and therefore demonstrates the right of substitution. The contractor has to be responsible for the completion of services and for paying the substitute. On the other hand, the client retains the right to refuse to accept the substitute on basis of insufficient qualifications and experience.

Since substitution is one of the three tests for determining status of your contract in reference to IR35, it is important that you do actually exercise this right even if you send a substitute for just a day. This way you will be able to demonstrate your right of substitution.

Demonstrate control

Your contract will also be tested for control in order to determine its status in reference to IR35. This test determines the degree of control over the execution of services exercised by the client. Control also includes control over workplace. So the place where the contractor actually does the work can demonstrate degree of control the client has over the manner of execution of services.

A client can determine what needs to be done and then the contractor decides the manner in which it has to be done for a contract to pass the control test. In case you are working from home, you have complete control over where and how the services are provided.

Demonstrate mutuality of obligation

Mutuality of obligation is the third test that is used for determining the status of your contract in reference to IR35. For a contract to fall outside IR35 legislation, there should be no mutuality of obligation in terms of continuity of services. No party to the contract should be obliged to offer work or accept work.

Other areas to consider

Status of your contract under IR35 legislation isn’t only determined on the above three tests but there are other areas that you need to consider as well. These include financial risk and provision of equipment.

Do you need IR35 insurance?

And the award for best mom of the night goes to….Angelina Jolie!

The Hollywood actress made a surprise appearance at the 2015 Kids' Choice Awards Saturday night with two of her adorable kids.

Wearing a black dress with her hair down and a light pink lipstick, the 39-year-old looked comfortable and chic as she sat next to Shiloh and Zahara.

Read full article here:http://www.eonline.com/news/640694/angelina-jolie-makes-surprise-appearance-at-kids-choice-awards-brings-shiloh-and-zahara-as-her-special-dates