IR35 Why and Wherefore Art Thou Romeo

IR35 investigations continue to be big problem for contractors no matter who prepares their tax forms or how carefully they attempt to protect themselves. National Insurance, VAT and the increasing complexity of tax law changes make it nearly impossible for anyone to keep up with all the changes. An independent contractor is wise to protect themselves from these issues by using an IR35 Insurance policy that at least covers the cost of representation and PAYE compliance enquiries. Even if you can only afford to protect yourself against the cost of legal defense then you are better off than having to shoulder the entire cost from your personal savings or current income.

In March of 1999 there was an initial HMRC IR35 press release that announced what particular rules were being put in place to help in controlling a large number of tax avoidance problems, especially in the area of personal services or independent contracting of employees who perform essentially the same services as a normal company employee. During the latter half of 1999 the rules for IR35 were modified and the resolution passed the Commons. The IR35 Rules became law in April of 2000 and has passed numerous legal challenges over the last 12 years. If past history with this law is any indication, it will continue to be a thorn in the side of contractors who are often presumed guilty until they prove their innocence and proving their cases or even defending themselves has become prohibitively expensive.

IR35 Insurance was designed to protect you from the ravages of an HM Revenue and Customs enquiry. The HMRC has set specific goals when it comes to investigating and collecting from freelancers who may be avoiding paying the proper taxes and this zeal to prosecute often catches even the most careful of contractors. Professional representation in an IR35 case can be extremely expensive, requiring the services of an accountant and legal help in order to ensure that you have properly taken care of your contracts. When you consider the yearly cost of even the most expensive IR35 insurance policy it is just a drop in the bucket compared to the cost of representation at a single compliance hearing. Past penalties and taxes can be confiscatory and cost you your home, business and reputation.

As an independent contractor you should always have your contracts reviewed by an independent professional to make sure on which side of IR35 insurance that you fall. Do not make the mistake of taking someone else’s word for your finances. Hire your own professional and make sure that professional is well versed in protecting clients from IR35 Rules transgressions. Just like IR35 insurance a contract review is relatively cheap and simple form of protection. One of the things HM Revenue and Customs looks for when initiating an investigation is whether or not you have taken "reasonable care" in conducting your tax affairs and if it seems that you have you may safely remove the target from your back. You give your clients great attention; now do not forget to give your own business the same care and attention.