The Inland Revenue and IR35

by Rebecca Seeley Harris, Copyright Seeley Solutions

Tax is an area many of us feel ill-equipped to understand. IR35 is one of the latest changes and will only affect you if you provide services through a limited company or a partnership. Recently, the Inland Revenue has released its final proposals for IR35 which relates specifically to the tax position of Personal Service Companies. It is being introduced to stop people who own limited companies from drawing a small salary and paying themselves the rest of their payment in dividends. Dividends don't attract as much tax as income.

The rules now are that if it wasn't for the presence of the 'intermediary' i.e. the limited company or partnership, the relationship between the person providing the services and the client would be that of employee and employer. The test is to consider whether the service provider performs the role of an employee if there were no limited company or partnership. If this is the case they will have to pay PAYE and National Insurance Contributions as an employee.

IR35 uses the existing rules pertaining to 'employed' or 'self-employed' status. This considers factors such as who controls the hours worked, the type of work undertaken and who supplies the equipment to perform the work. So, if you find yourself working with just one client company for the majority of the time, providing services which you could well be providing as an employee, get some advice from a suitable lawyer of accountant.

As a Coach with a background in the law, I know the benefits of being legally aware. Primarily, of course, it protects one from being sued for breach of contract by a client. You might think that in the UK and Australia this is unlikely to happen but, on the occasion that it does, it could be extremely costly. If working with international clients the situation can be even more complex.

Rebecca Seeley Harris LLB(Hons) LLM MSc
Seeley Solutions

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