IR 35 / PERSONAL SERVICE COMPANIES
The rules state that if you set up a limited company to obtain work by providing your services to a customer then HMRC has a right to look at the real day to day actual working relationship with the customer and in short they can decide that what you believe to be your customer is in fact your employer In that case a limited company structure will not work and the more costly PAYE rules will apply instead. The Revenue will ‘go back in time’. This all depends on that relationship and not what any particular set of written contracts state in them.
HMRC has issued some Guidance in this area including the following key factors where you need to show that the working relationship really is one of self-employment, on the balance of the facts, rather than you really being employed by your customer;
- Do you work from your own business premises
- Do you have professional indemnity insurance
- Who decides on how efficiently the work is done
- Were you previously an employee with the customer
- Do you correct the work yourself if it is wrong
- Who bares the ultimate risk for the job being done
- Who decided on the amount and frequency of invoicing
- If you cannot carry out the work do you have a right to send someone else and then have you ever really substituted someone to cover for you
- Do you advertise for work
- Do you have a written business plan forecasting into the future
These are in no order of priority and each factor will only be persuasive one way or another. The Revenue has published examples with its opinion on each one.
If you accept that your company would be within the IR 35 rules then basically you would have to pay most of the income to yourself as a series of salaries under PAYE and they will not be classed as dividends, detailed rules apply.
Arrange a free initial consultation today with an Accountant where you can discuss how you want us to listen and help in more detail, please call Alan or Gillian on 01302 311777. Alternatively you can email [email protected] or [email protected]