HMRC have released guidance setting out their risk-based approach to checking compliance with IR35.
The ‘IR35’ rules are designed to prevent the avoidance of tax and national insurance contributions through the use of personal service companies and partnerships.
The rules do not stop individuals selling their services through either their own personal companies or a partnership. However, they do seek to remove any possible tax advantages from doing so.
The tax advantages mainly arise by extracting the profits of the company by way of dividend. This avoids any national insurance contributions which would generally have been due if that profit had been extracted by way of remuneration.
The intention of the rules is to tax most of the income of the company as if it were salary of the person doing the work.
Broadly the rules apply if, had the individual sold their services directly rather than through a company (or partnership), they would have been classed (by HMRC) as employed rather than self-employed.
For example, an individual operating through a personal service company but with only one customer that they effectively work full-time for is likely to be caught by the rules. On the other hand, an individual providing similar services to many customers is far less likely to be affected.
HMRC have released new guidance setting out their risk-based approach to checking compliance with IR35. It lays out the approach to compliance and how to work out which ‘risk band’ a business may be in. It also gives example scenarios to illustrate when and why IR35 will apply to an engagement. Interestingly, the guidance is aimed primarily at businesses rather than at their advisors.
If you have any concerns in this area please do get in touch.
Internet link: HMRC guidance