Today the Chancellor of the Exchequer, Jeremy Hunt MP, announced the Spring Budget 2023.
Other than the increase in Corporation Tax from 19% to 25% in April, little of relevance to limited company contractors and recruiters was announced. Superficially, this may be tolerable, but pitfalls remain, and limited company contractors must remain vigilant about the risk of penalties when providing services to clients within the scope of the small companies exemption.
Of significance, the small companies exemption introduced in the off-payroll legislation remains in place despite speculation of its demise. The small companies exemption means that limited company contractors remain liable for any underpayment of tax and National Insurance contributions if the client meets the test in section 382 of the Companies Act 2006. If two of the following three criteria apply, the client is deemed to be small, and the old IR35 legislation will be relevant to an engagement involving a limited company contractor:
– Revenue of up to £10.2m
– Balance sheet assets up to £5.1m
– Less than 50 employees (not contractors or agency workers)
Consequently, limited company contractors providing services to small companies in the UK must continue to take reasonable care in order to avoid penalties of 30% or 70% if the IR35 legislation is found to apply to an engagement. The IR35 legislation is a legal test based on the interpretation of contractual terms in light of a vast body of case law. All taxpayers are subject to a duty to take reasonable care in relation to their tax liabilities.
Reasonable care does not mean:
– Using HMRC’s Check Employment Status for Tax tool which cannot see the terms on which the services are provided, is wrong in law and is vulnerable to expectation bias;
– Getting a contract review from an adviser who lacks legal qualifications such as a contractor ‘conversant’ in IR35, an accountant, insurer or a publican;
– Taking advice from a contractor who has ‘poured’ over guidance notes and judgments without legal training;
– Relying on an IR35 assessment process produced by a non-lawyer that’s not backed up with legal professional indemnity insurance available only to paralegals, barristers and solicitors.
– Over-reliance on substitution;
– Being taken in by a tax insurance policy may place your property at risk if the Managed Service Companies legislation applies. Are you confident that an insurance company will pay out in the event of a claim?
IR35 is a complex area, and The Law Place Limited’s director, Martyn Valentine LLB (Hons), has over 18 years of experience advising contractors on IR35 and related contractual matters. The Law Place Limited is fully insured to advise on the IR35 and off-payroll legislation. Getting competent legal advice is the only way to show that you have taken reasonable care about IR35.
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