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IR35
is the Inland Revenue's reference to the antiavoidance rules
bought in to police (mainly) one person "service companies".
The facts:
- The
rules have applied since 1 April 2000.
- Interpreting
IR35 has many grey areas. Principally: is it applicable
to you? There is a lot of material issued to help you decide,
but every business is different and concluding will often
not be easy.
- If
you don't have one, consider developing a web site, most
genuine businesses would have one.
- The
effect of IR35 is that, at the end of your accounting period,
we will have to calculate your income from the contract(s)
less expenses that would have been allowable had you been
employed (including pension contributions) less a further
5% of deemed allowable expenses. This will then be deemed
to have been paid to you as a 'salary' and the tax and National
Insurance will be adjusted (taking account of any that may
already have been paid).
- Your
books and records and day to day business are unaffected
(but see below regarding the identification of expenses).
Our
advice is:
- To
examine whether IR35 is relevant to you, to provisionally
conclude and to document the reasoning.
- To
look closely at your Contract to see if it helps in the
examination referred to above and to consider whether relevant
(and realistic) alterations can be made.
- Consider
whether you can invoice for travel and communication as Cost
of Sales, rather than treat them as your own overheads. This
will not help if you simply travel to the 'client' office
and use their facilities for all of your work.
- Maintain
flexibility by taking only a modest salary and await further
developments.
- Ensure
that your accounting records enable you to identify
allowable expenses.
- Build
up a tax reserve for the potential tax payable. This is
particularly important for the big losers - those used to
paying large dividends to non-working spouses who owned
49% of the company!
This
remains a complex subject. Please call us to review your own
circumstances: 020 8876 1097
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