How contractors can remain outside of the scope of IR35

IR35 is a UK tax legislation that aims to ensure that individuals who provide their services through personal service companies (PSCs) are subject to the same tax rules as employees. However, there are ways for contractors to remain outside of the scope of IR35 and avoid the additional taxes and compliance requirements associated with the legislation.

Establishing true self-employment: Contractors can demonstrate that they are truly self-employed by showing that they have multiple clients, have the right to substitute another worker, and have control over their working conditions. This can help to prove that they are not under the control of the client, which is a key factor in determining whether they fall within the scope of IR35.

Maintaining a clear business structure: Contractors can maintain a clear business structure, such as having a separate business bank account, maintaining proper financial records, and having a business plan. This can help to demonstrate that they are running a genuine business, rather than being an employee in disguise.

Drafting a robust contract: Contractors can draft a robust contract that clearly defines the terms and conditions of their engagement with the client. This can include clauses that specify that the contractor is self-employed, has the right to substitute another worker, and is not under the control of the client.

Keeping accurate records: Contractors can keep accurate records of their working hours, expenses, and income to demonstrate that they are not an employee. This can include records of invoices, receipts, and timesheets, which can be used to support a claim of self-employment.

Providing business-related services: Contractors can provide business-related services, such as providing advice or consultancy services, rather than personal services. This can help to demonstrate that they are not an employee and are providing value to the client in a different way.

Avoiding long-term contracts: Contractors should avoid long-term contracts, as they can imply that they are an employee. Instead, they should opt for short-term contracts with a clear end date, which can help to demonstrate that they are not an employee.

Seeking professional advice: Contractors can seek professional advice from an accountant or tax advisor to ensure that they are operating in compliance with the rules and regulations.

Overall, contractors can remain outside of the scope of IR35 by demonstrating that they are truly self-employed, maintaining a clear business structure, drafting a robust contract, keeping accurate records, providing business-related services, avoiding long-term contracts, and seeking professional advice. By taking these steps, contractors can ensure that they are operating in compliance with the rules and regulations and avoid the additional taxes and compliance requirements associated with IR35.