What you need to know about IR35

Familiarising yourself with numerous legislation is just one of the many tasks involved in setting up your own business. But for contractors, specifically, there’s a crucial piece of legislation to get to grips with: IR35.

 

What is IR35?

IR35 is a type of tax legislation put in place to prevent contractors from limiting their tax liabilities by supplying services through a Limited Company, despite carrying out the same work as the company’s employees. In short, it’s designed to stop false self-employment.

 

Does it affect all contractors?

HMRC defines ‘disguised employees’ as contractors who are treated and act like any other member of staff working for a company. IR35 law aims to stop disguised employees trading under an intermediary, which would entitle them to greater tax benefits.

It may seem simple on paper, but in actual fact, many contractors have found it difficult determining whether or not the legislation applies to them. Trading as a Limited Company and working ‘outside’ of IR35 can result in higher take-home pay than an Umbrella agreement, but you need to be certain about your position or you could face financial penalties.

Another thing to bear in mind is that the legislation applies to each individual contract. This means that you might be outside of IR35 for one contract, but within its scope for another. And that’s why it’s important to conduct thorough contract review processes, in order to clarify if any part of your work falls inside the legislation.

 

What penalties could I face?

Contractors found to have been ‘careless’ can be fined 30% of unpaid tax. This climbs to 70% of unpaid tax if the contractor was aware they were inside of the legislation but deliberately did not make the payment; and 100% of unpaid tax if they also tried to conceal their actions.

 

Whose responsibility is to determine IR35 status?

Big changes were introduced from April 2017, which saw the responsibility of determining IR35 status move from the contractor to the client. But this is only where the contract is with a public sector body. The government are currently also debating rolling it out to cover the Private Sector, although this is likely to take some time, if it happens at all.

Some evidence suggests that this has had a negative impact on the industry, causing firms to insist their contractors trade under an Umbrella agreement to relieve the burden of payroll and other administrative duties.

 

Pairing up with a professional

If you’re considering setting up as a contractor, the experts at Intouch Accounting can help you to navigate the minefield that is IR35. We’ll make sure you understand your rights and risks under IR35 and other laws, and will review your contracts for compliance. To find out more about our service, get in touch today.

 

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

 

 

 

 

 

 

Dividends – how often should I take them, and when are they taxed?

Dividends can sometimes be difficult to understand and many contractors find themselves wondering when they should take them and when they actually get taxed? In this blog we answer these two questions and cover the timing and tax point of dividend declarations.

 

Question 1: When are dividends taxed? Is it when they’re paid, or the date they’re declared?

A dividend will be included on your tax return, according to the date the dividend was declared as becoming payable. The date it was paid is not relevant. For example:

A dividend declared 1 April 2018, that was ‘payable’ on 7 April 2018, is included as income for the 2018/19 tax year regardless of when it is actually paid.

Remember! Should HMRC decide to investigate, in order to support all dividends, you should keep copies of all dividend vouchers and minutes. Your contractor accountant should have a dividend template for you to use, then you can simply send them a copy every time you use it.

Tax planning opportunities

If you have some of your basic rate tax band left, have sufficient profits in your company and for whatever reason, you don’t want to pay yourself a dividend at that time, you’re able to declare a dividend immediately payable, if you intend to take the cash at a later date. This means you can fully utilise your tax allowances year on year, as it ensures the dividend falls into a specific tax year.

Don’t forget that as of 6 April 2018, the dividend allowance is £2,000. This applies for 2018/19. It’s worth taking at least £2,000 in dividends, as this amount is tax free, regardless of which tax band you fall into. Your contractor accountant will be able to review the level of dividend allowance available and amend this as necessary.

 

Question 2: How often should you pay yourself dividends? What are the dangers of monthly payments looking like disguised salary?

We generally recommend our clients to pay themselves dividends either monthly or quarterly. You can, however pay them whenever you wish.

As long as the correct dividend voucher and minutes paperwork are in place and your company has sufficient funds to cover the distributions, there’s little chance that HMRC will see your dividends as salary.

We do advise all clients to keep their salary and dividend payments completely separate from one another and pay all shareholders separately in the correct proportions, so that a clear audit trail can be provided. Should you be subject to an HMRC review, having clear audit trails in place can make all the difference, as every item is easy to trace and nothing has been missed or hidden.

If you’re looking for specialist, tailored advice regarding dividends that’s unique to you and your circumstances, speak to our team today to find out how Intouch can help you. Our Personal Accountants are here to be your guide, to ensure you get the best and most from contracting.

 


This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Four ways to get the day rate you deserve

Increase your day rate with our top tips

Your take home pay is (probably) a big part of your career as a Limited Company contractor, so it’s only natural to consider whether you’re getting the day rate you deserve for your skill set and experience.

 

In this blog we share with you the top four ways to negotiate the day rate you deserve and give you essential advice on how you can continue to steadily increase your take home pay as you progress through your career as a Limited Company contractor.

 

1. If people aren’t buying, then you shouldn’t be selling

Start by taking a look around your industry – who’s looking to hire people in a similar field to you and how much are they willing to pay? What skills are they demanding and if possible, are you able to see how many other people have applied for the same position?

 

Job boards, agencies and talking to similar contractors can give you a great insight into how healthy the hiring market is, at the point at which you decide to aim higher. If a previous client is requesting your services but is questioning your higher rates, ensure you are able to quote reference points throughout your industry research to demonstrate how you can justify your increase.

 

2. Test the waters with an agency

One of the most popular methods used to find contracts is through agencies, so why not speak to them first to see what the marketplace is like? They spend more time looking at day rates and how much clients are willing to pay, so liaise with them first.

 

Ask them if your day rate is on par with those similar to you and whether there are any clients who tend to value the level of contractor’s experience based on the day rate they charge. You could be missing out purely by charging too little!

 

If your agency acts on your behalf they will be able to negotiate with the client that you’re the right contractor for the job, rather than the day rate being right for you as an individual. They can also act as a buffer between you and the client, so should they react in a negative way then your professional working relationship is not directly affected.

 

3. Timing is everything

Are you half way through a contract and realising you’re charging too little? Unfortunately to remain professional there’s very little you can do when it comes to to negotiating a higher rate mid-way through something you’ve already agreed to.

 

However, should your contract’s conditions change or it’s extended, then this is when you’re able to consider introducing a higher daily rate. Any changes in your contract are an open invitation to negotiation on both sides, so use this to your advantage.

 

4. Show passion for what you do

For some clients it’s not just about whether you can complete the contract on time and to specification. Sometimes they’re looking for more and that’s why it’s equally as important to showcase your passions for contracting as well as their industry as a whole.

 

Show the client how much you enjoy contracting, what part of their contract excites you and your enthusiasm for their project. You can’t fake passion and clients knows this, so if you genuinely have a real connection with a certain contract or client then ensure you get this across.

 

It will also make negotiation for a higher rate much easier, as the client will know you’re the specific contractor they want and will be willing to pay.

 

Negotiation is key

So there you have it, our top four tips for getting the day rate you deserve. For many clients, dealing with a contractor that is low maintenance, highly skilled, that can easily form team relationships and understands they are replaceable is a rarity – so use this knowledge to your advantage when pitching for business.

 

Maintain your professional dignity, integrity and reputation and you’ll find it much easier to request an increase in remuneration.

 

Like this type of advice? Our resources section has lots of free blogs and guides, to help you on your way to contracting success. Alternatively you can speak to one of our team of expert advisers. We look forward to joining you on your journey to Limited Company contracting success!

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.