The IR35 tax was originally designed to spell the end for “disguised employees” in businesses up and down the country. The latest tax tribunal case shows that even BBC presenters aren’t safe from it.
What is the IR35 Tax?
In order to put a stop to the so-called ‘Friday to Monday phenomenon’, the government brought in something called “the IR35 tax”.
The law itself has actually been around since 2000. HMRC made some slight changes to it in mid-2017 and this brought the topic back into the public eye.
The changes made in 2017 are pretty major. Previously, it had been up to the contractor to decide whether they were within the scope of IR35 or not. Now, any contractor working for the public sector would now have their IR35 status judged by the organisation paying them.
The “Friday to Monday phenomenon” is when an employee is taken off the payroll on Friday only to come back into work the following Monday as a private contractor.
The reason many businesses do this is because the owner will pay less in National Insurance Employers’ Contributions. They also do not have to follow employment law, pay holiday pay, and so on.
Contractors love the arrangement too. They pay a lot less in corporation tax, salary, and dividend tax than they would pay as a salaried member of staff.
Theoretically, the IR35 rule should stop companies and contractors from being able to do this.
The problem with the IR35 rules is that the government didn’t do a great job when specifying what a contractor exactly is when they created the tax. In addition, there are so few people within HMRC to investigate this that, in effect, the law has not been enforced.
What is the BBC Look North Presenter Case?
A former Look North presenter called Christa Ackroyd was caught out by this tax after a HMRC investigation in May 2015.
Ackroyd was accused of avoiding paying £419,151 in income tax and national insurance. This all emerged only after she had quietly left her job for presumably unrelated reasons.
Since then, many more high earners within the BBC have been required to declare themselves as an employee of the BBC rather than as self-employed.
How can you avoid this?
Unfortunately, HMRC does not operate on an innocent until proven guilty basis. If you’re investigated, you will need to prove that you do not fall under IR35 rules.
To do this, you need to gather evidence to support your claim. This can take many forms – a copy of your original contract is invaluable, and notes from conversations (texts, emails etc.) specifically relating to hours of work can also be advantageous to you.
Keeping a portfolio of timesheets and invoices can also help bolster your argument.
This is a list of several things you can do with regards to the actual contract that you draw up with your employee that can greatly decrease the risk of falling foul to IR35:
- Get the company to make the work contract out rather than to you personally.
- Set out the rules of engagement between you and your contracting organisation during your negotiations and capture those rules within your agreement
- If in doubt, get in touch with your accountant.
We can help
Getting specialist advice on this subject will ensure you don’t get into any trouble with HMRC.
If you have any enquiries about IR35 taxes and the services we can offer to help you tackle them, don’t hesitate to call us and speak to our expert team on 01202 577 500 or email email@example.com – it’d be great to hear from you.