SMALL BUSINESS TAX ATTACK #3
EMPLOYMENT STATUS (IR35)
One of the issues causing most distress to many contractors in particular, and small businesses in general, is the uncertainty surrounding Employment Status, also known as IR35.
Before the Conservatives were in government, there was a fantasy peddled in some quarters that they were committed to abolishing IR35. In fact, they strengthened the rules, only increasing uncertainty and making life more difficult for millions of micro-enterprises. In fact, the rules around IR35 have been described by a House of Lords committee as counter-productive.
Nevertheless, HMRC is convinced that going easy on IR35 will only encourage more people to throw off the shackles of employment and set themselves up as self-employed or, even worse, limited companies. Indeed, there used to be an Employment Status Indicator test on the HMRC website that almost invariably told you that you were really an employee.
Many contractors are already hard hit by the dividend tax increase (SBTA#1) and restrictions on the Employment Allowance (SBTA#5). Some will also be affected by the restrictions on capital distributions (SBTA#2). Now a further change is that contractors who are caught by IR35, will not be able to claim travel and subsistence expenses.
The changes this year may be relatively limited but as another phase in the unrelenting attack on contractors, it reinforces a sense of unease among the contractor community and those they work with.
BUT WHAT CAN YOU DO ABOUT IT?
There are a few ways to mitigate the effect on your business, such as:
Get your contract reviewed.
Whichever side of the contract you’re on (engager or contractor), get your contract reviewed to ensure it is IR35-compliant. Ask us for details of our service.
The same firms that carry out contract reviews often offer insurance against the cost of tax investigations or even the tax & NI bill if you lose your case.
Get more clients.
Ok, it might not be practical for everyone, but taking on more clients not only reduces your exposure to IR35, it also reduces the risk profile of your business, as you will be less reliant on any one source of income.