At FW Accounting, we feel it’s our moral obligation to ensure that each of our Contractor/Freelancer clients and followers are operating in an IR35 compliant manner.
We value this as highly as ensuring that our clients are Tax efficient. The benefits of having a limited company mean that you are generally more tax efficient than if you were PAYE. However, HMRC introduced IR35 to stop absolutely everyone trading via a limited company and not paying National Insurance on their dividends. Naturally HMRC want to get their hands on any tax they think they are due so as a director being IR35 savvy is essential. This is why we have hundreds of blog posts and resources to help you on this quest of IR35 compliance.
There are a few things you can implement to improve your IR35 status and a big factor in demonstrating you are a genuine business is taking some financial risks…
Financial Risk to improve your IR35 Status
HMRC use the following explanation to look at ‘Financial Risk’ in terms of IR35 Compliance.
“Generally speaking, the greater the financial risk which the worker runs in doing the job, the stronger the pointer towards self-employment. Employees are usually not obliged to risk their own capital.” HMRC IR35 Guidance
In comparison, taking a financial risk as a Limited Company Director – can seriously improve your IR35 standing, and along with the below guidelines from HMRC, we have a new opportunity for you to improve your status; without hassle, time or a tremendous amount of effort.
Ways that Financial Risk can enhance your IR35 status, therefore making you lower risk:
[dropcap type=”square”]1[/dropcap] Risking your own money, buying assets, paying for overhead’s and bearing the running costs of the business – show you are truly self employed, and not a disguised employee.
Being a shareholder of the company, doesn’t actually help here – as it’s possible to have shares of a company when you are an employee – many people do.
[dropcap type=”square”]2[/dropcap] If you are a contractor who is obligated to re-do or correct ‘sub standard’ work in your own time, i.e. you make a loss on day rates, and no extra pay is received for this extra essential work, then this puts you in great standing as appearing like a truly self employed Limited Company Director. This includes supplying replacement materials.
[dropcap type=”square”]3[/dropcap] Paying for your own Training and development to increase your skills for a contract, especially if there is a risk that the money spent on this development would not be covered in the income made from this contract work, or future contract work. Obviously from a Cashflow point of view this is not ideal.
[dropcap type=”square”]4[/dropcap] Good Management of a Task can be seen as a financial aspect related to IR35 status. If an agreed amount of payment is decided before a project/contract begins – a truly self employed person could display their control by finishing the job early, and reaping the financial rewards. The financial risk appears when a job may run over an agreed time period, and the contractor makes a financial loss.
[dropcap type=”square”]5[/dropcap] Business Finance – Our Partner Company:
have a promising product on the market to assist with a Contractor’s IR35 status as well as enabling you to be paid weekly via Timesheet Financing. You can find out more about this here.
If HMRC can see that your business is taking a financial risk, by paying for Corporate finance to allow you to run your business, then this all the more improves your IR35 status because your are implementing one of the main factors in IR35 legislation.
UCFinance are set to take the Contractor Financial Market by storm with a unique product to meet the finance needs of Limited Company Directors of Service Companies, which cannot be met by Bank Loans and Short Term loan companies. Therefore FW Accounting are delighted to work in partnership with them.
If you would like to read any of our further blog posts in regards to IR35 compliance, and how you can minimise your IR35 risk, please check them out here.
Remember all clients of FW Accounting get a IR35 contractual review through our IR35 Compliance Partners:
but it’s essential to ensure your working practices (i.e. what you actually do onshore and offshore) also reflect this contract at all times.
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