If you’ve been searching the web for a new accountant, you may well have come across this phrase. Given the financial impact IR35 can have on your post-tax income, can these ‘IR35 accountants’ provide some kind of magic solution?
Unsurprisingly, the answer is ‘no’. There is no such thing as an ‘IR35 accountant’ – this is more a term used by accountancy firms to attract interest in their services, or to appeal to the whims of the Google ranking algorithm.
All contractor accountants should be IR35 savvy
In reality, one of the main things you should expect your accountancy provider to have is an in-depth knowledge of the IR35 legislation – how to account for it if your contract work is caught by the rules, and more importantly what steps contractors should take to ensure they are not caught.
Your accountant cannot ensure that your contract work is caught by IR35 or not. There is no magic accounting solution to circumvent the legislation.
Not only does your contract need to show that you are ‘self-employed’ as per the HMRC definition of the term, but your working practices also need to demonstrate that you are not merely a ‘disguised employee’ (find out more in our dedicated article here).
Compliance with IR35 has become even more of a minefield since the ‘off-payroll’ rules were applied to public sector organisations. These rules are due to be extended to the private sector in April 2020.
A good accountant will be able to provide specialist IR35 advice, and/or put you in touch with a reputable employment status specialist who can help you not only with your contract but also examine your working practices.
Your accountant will also be able to recommend a supplier of tax investigation insurance, which will cover the costs of representation should HMRC decide to single your company out for a compliance visit. Some more extensive policies will also cover any back taxes you may be found to owe following a compliance visit.
What about umbrella company contractors?
A few years ago, many umbrella companies marketed themselves as ‘IR35 compliant’ schemes, which was misleading, as the IR35 legislation simply doesn’t apply to users of PAYE umbrella companies at all.
Worryingly, as a result of the off-payroll rules, similar schemes have started to re-appear on search engine ads for IR35-related terms.
What happens if your contract work is caught by IR35?
Whatever your IR35 status makes little difference to your accountant in terms of effort:
If your assignments are free from IR35, your company will typically pay you a small salary; the company’s retained profits can be drawn down as dividends by shareholders.
If your contract work is caught by IR35, after taking a flat 5% ‘administration allowance’ into account and any other allowable expenses (both depending on eligibility), your income will be in the form of a ‘deemed salary’ after deductions for income tax and national insurance contributions.
Have a look at this article to work out the financial impact of IR35 on your net income.
So, every specialist contractor accountant should be an IR35 specialist by the very nature of the industry they are working in.