RED10 believe that all contractors should not only be able to establish their business or contracts correctly but also ensure they are correct in any ‘outside’ IR35 Tax Status determination. This information will allow contractors to do this.
1. PAY FOR A CONTRACT REVIEW
RED10’s contract has had the relevant IR35 checks; however, it is due diligence to get an expert’s opinion on behalf of their Company and we at RED10 encourage this. This will also help understand their business obligations under any contract.
All RED10’s contractors have specific deliverables in line with their assignments. These deliverables are essential and should be clear on any contract their Company signs. These may require continuous updates, sometimes mid-contract. Having these recorded along with project managing these alleviates a certain aspect of ‘control’ from the Client because the deliverables are set for RED10’s Contractors to fulfil their contractual obligations. As a contractor, ensure to keep track of all deliverables and let the RED10 contracts team know should they require revision.
3. INSURANCES AND PAYMENT TERMS
For RED10, insurance is a contractual obligation. All genuine businesses have insurances. This is a genuine Company Liability. Holding business insurance (Professional Indemnity in particular) has always been a key attribute to any IR35 position. RED10 do not run a ‘payroll’ system. Standard payment terms are 30 days from date of receipt, giving the contractor the bonus of submitting invoices and also ticking the ‘financial risk’ box that applies to all genuine businesses.
4. AVOID REPLACING AN EMPLOYEE
Contractors should always start a contract on the understanding that the work is for a supply of services of contractors who have knowledge and expertise in their specialist field. By replacing an ‘employee’, the client’s expectations are likely to be for a ‘worker’ with the characteristics of an employee. Therefore, falling inside of IR35.
5. RIGHT OF SUBSTITUTION AND EXERCISE IT IF POSSIBLE
Substitution is often called IR35’s ‘silver bullet’ and with good reason. If a contractor can send a substitute Contractor to provide the same services, it proves that the individual is not delivering a personal service, and therefore cannot possibly be an employee. However, having something written in a contract is great, but it won’t protect contractors unless it is genuine. RED10 current contracts do have a substitution clause. Please take the time to read over this.
6. DON’T ATTRACT HMRC’S ATTENTION IN THE FIRST PLACE
Running a small business can take a lot of time, especially when contractors are busy trying to fulfil contractual obligations. Yet the importance of ensuring paperwork is in order is paramount for our contractors.
7. LATE TAX RETURNS
Submitting a tax return late – or with errors – will put contractors on HMRC’s radar, and arouse an inspector’s suspicions that there may be other mistakes.
8. USE AN ACCOUNTANT
Contractors should take measures such as hiring an accountant to submit tax paperwork, can significantly reduce their chance of being targeted for an investigation. This would also count as a genuine Company liability (overhead).
9. KEEP A DIARY
If contractors do end up on the taxman’s radar, HMRC may investigate all past contracts. We encourage to keep records, such as telephone logs and copies of emails, so contractors have proof of their day-today working arrangements. Contractors should log all assignments that they are delivering and completing. This can be written statements, copies of tenders, key information such as engagements throughout a year.
10. KEEP THE CLIENT AT ARM’S LENGTH
Contractors should avoid becoming part of the company furniture. Avoid being on organisation charts, having the end Client’s business cards in their name, or receiving any benefits normally given to their employees. Avoid becoming part-and-parcel of the organisation. Other examples; attending employee Christmas Parties, or using client email addresses for any company or personal information.
For contractors and their company, it is in their best interest to keep their knowledge up to date on how their Company runs and what can affect it. This problem isn’t going to go away and for now Company Directors need to take the responsibility of their possible tax position and understand their tax status thoroughly.
Over the coming months, it is essential that contractors understand their tax status and define any current assignments as being inside or outside of IR35.