Having conducted hundreds of IR35 reviews and submitted dozens of contracts to the Revenue for approval it has become apparent that the most effective way to avoid IR35 is not by contract manipulation or convoluted avoidance schemes but simply by restructuring your business.

The whole secret to beating IR35 is to demonstrate that you are “in business on your own account”. This idea was first mentioned in the case of Market Investigations v Minister of Social Security and is known as the economic reality test. It is the one test that the individual has control over without the need for any reliance on either the agent or end user.

If you action the simple steps detailed below you are almost guaranteed to pass IR35, regardless of your contract terms:-

Advertise

Advertising your skills is critical. It does not have to be expensive and very often will produce additional income for you.
Think carefully about where you advertise. Yellow pages is a simple and fairly inexpensive place to start but you could research trade magazines, relevant web sites and local newspapers.
An offshoot of effective advertising is that you will gain other clients which is another strong pointer toward being in business on your own account even if the amounts generated from this additional work are relatively small.

Office and equipment

A designated home office is important, preferable a room set aside for the purpose with a desk, chair, PC, printer, ISDN/ADSL lines, filing cabinet etc.
Make sure that the telephone lines are in the Company’s name, not yours.
A rule of thumb that the Revenue use for determining whether equipment purchased is a relevant factor in IR35 status is a total value of £5000 or more.

Web Site

Spend some time developing your own web site and getting registered with the major search engines. Not only could this bring in some business but again it shows the Revenue that you have put some thought into your business and are looking to attract additional clients.

Stationery

Have your own letterheads, invoices and business cards printed. Not only does this look more professional but it also demonstrates that you are serious about your business.

Training

Where possible keep your skills up to date or learn new skills. From an IR35 point of view, keep a record of what you have actually done, and how much money and time you have spent on training. This is good business practice and another demonstration to the Revenue that you are in business on your own account.

Other Considerations

Make sure that your Company is registered for VAT and obtain professional indemnity, employers and public liability insurances.

OPERATING AS A SOLE TRADER – SHOULD I INCORPORATE

With the first £10000 of Company profits free from Corporation Tax there are very significant tax savings to be made by operating through a Limited Company.

As an example, with profits of £30000, there would be a saving through incorporation of c£3500

A Limited Company can be set up within a matter of hours and provided you employ a good firm of Accountants they will ensure that all the appropriate returns are made to the Revenue and Companies House without the need for any major time involvement on your part.

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(Simon Dolan ATII ATT is the Managing Partner of SJD Accountancy a National Firm of Chartered Tax Advisers and Chartered Accountants specialising in the provision of fixed-fee taxation and accounting services to I.T. Contractors and Consultants).

www.sjdaccountancy.com

For more information contact
SJD Accountancy on 01442 825690