What is IR 35 compliance offshore
IR35 was introduced in April 2000 by the UK Government's Tax Authority (Revenue) which many saw as a means of the Revenue gaining additional taxation. The Revenue claimed that many "contractors" were really employees of their end customer and were not self employed at all. Previously to this all self employed individuals were able to use limited companies to provide services.
The self employed person could draw a reasonable salary from his limited company and then draw the balance of the profits earned by his company as dividends. This was a tax efficient arrangement. Most of the profits of the company would be paid out as dividends (which are taxed again if paid to the contractor as a shareholder). It was however possible that individuals running their own contractor company could avoid being taxed as employees altogether.
The Inland Revenue (HMRC) Stated:
"The purpose of the new rules (IR35) is to remove opportunities for the avoidance of tax and Class 1 National Insurance Contributions by the use of intermediaries, such as service companies or partnerships, in circumstances where an individual worker would otherwise be an employee of the client or the income would be income from an office held by the worker."
The actual rules for IR35 have been legally difficult to define and in fact the Revenue has quite a poor record in Court at enforcing it. Not everyone can comply with IR 35 regulations but we at AMP & Partners can provide some common sense advice and can walk you through the options available. Please Contact Us for a free confidential assessment.
HMRC has suffered several defeats in court over IR 35, the most notable cases being engineering contractor and PCG member Mark Fitzpatrick and IT contractor Elaine Richardson. Elaine battled with HMRC for over five years over its claim for more than £50,000. A tax tribunal ruled that her contractor limited company, ECR Consulting, “is a genuine business and therefore not the target of the IR35 legislation”.
Contractor Gary Hughes won his case against HMRC after a Birmingham tax tribunal ruled that “there is no mutuality of obligation and the degree of control which would have been needed to establish a contract of employment just did not exist".
Contractor Phil Winfield won his IR35 battle against HMRC. Eight years after the taxman started its investigation into his company, Primary Path Ltd. A first tier tax tribunal found Primary Path to be genuinely in business of its own account.
We at AMP & Partners would be happy to provide a 'no fee' consultation to discuss your current contractor situation and IR 35 Compliance. Contact Us to find out more