IR35 Contracting: Is it possible in 2020?
One question you might be asking yourself these days is if IR35 Contracting is possible in 2020? If so, then don’t worry yourself we will attempt to answer this question for you in the fullest capacity. To start off this incredible article we will have to go back to the beginning, by describing and explaining what exactly IR35 is and how it effects people in the United Kingdom. So, sit back, relax and get yourself prepared to read one of the most important articles of 2020.
What is the IR35 rule?
Simply put IR35 is a ruling put together by the United Kingdom government to stop people from exploiting working without having to pay for tax. It is a wording used to describe two pieces of legislation. This was formed by HMRC earlier in 2019, this rule effects independent contractors, self-employed people and freelancers, as well as the firms hiring them, like a limited company.
People that work this way are known as workers by HMRC so if you are caught by HMRC not paying your national insurance contribution and income tax then you will be given quite the hefty fine. Plus, if the limited company hiring this individual is caught then they can pay up to 25% more in taxes which is a lot of money.
Sufficed to say this legislation was put together to stop certain workers from fraudulently claiming to be contracts and then claiming the tax benefits that are associated with being a contractor. Therefore, if you are IR35 contracting then you should be fine as you will be IR35 compliant. We know that this can be quite confusing as HMRC aren’t the best for making a clear distinction between contractors and your standard employee. Please be aware though that there are changes that will hit the IR35 contracting sector by April 2020, which is a good enough reason to fill out our contact form at Comparison Contractor to see if you will be affected.
Here is a quick quote from Seb Maley who is an IR35 contracting contractor regarding IR35
“IR35 is a tax legislation which basically looks to differentiate between genuine businesses and workers, who are for all intents and purposes, a temporary employee. Unfortunately the legislation lacks clarity, and so it can be difficult to determine between the two, with a number of status tests which differ in importance, misinterpretation of case law even by HMRC themselves, and a general misunderstanding or appreciation of the self-employed workforce from Government policies, not to mention an outdated and over-complicated tax system. Whilst it’s not that straightforward, as long as contractors take due diligence through contract reviews and protect themselves with insurance, they can operate compliantly under the rules and have peace of mind – whether that is inside or outside of IR35.”
The benefits of IR35 contracting
To understand why HMRC is so against people claiming tax benefits from IR35 contracting you have to look at some expenses that can be claimed. So, here is a list of benefits you can receive from IR35 contracting.
A better rate of pay: Because IR35 contracting attracts specialists from across the globe you can imagine that the rate of pay would be higher. IR35 Contracting attracts doctors, IT consultants and specialists from all different kinds of working avenues. As this is what is expected when it comes to niche skill sets and experience that all contractors have when working within IR35.
Learning new skills: Within each role you take on within a different environment you are bound to learn new skills, people, processes and systems. Therefore, IR35 contracting is the perfect way to learn new skills and put them to practise in a good working environment. This will also increase your value in the umbrella company that you will be working for or the clients that you work for. As well as, secure yourself a higher pay rise in the future.
Talking about better pay: One of the many things that a contractor who is IR35 contracting has great access too is better pay. Being a specialist with diverse knowledge of their individual skills can easily give you access to better pay. The best thing about this as well is that you will only see that pay grade rise.
Variety of industry: One of the many incredible benefits that are brought to the table when it comes to IR35 contracting is that you have different industries, sectors and jobs to choose from without having to fully commit to the role on a permanent basis. As you might be able to foresee, you have access to a plentiful amount of services when it comes to this and you will hit fresh projects and challenges.
Flexibility of contracting: A certain positive of IR35 contracting is the flexibility that comes with this opportunity. Simply put, you can easily integrate your work into your lifestyle. Meaning that you can work when it suits you.
The job you have dreamed for: As you might be able to tell there are quite the few upsides to IR35 contracting and one of them has to be that you can get the role in a company that you want. When it comes to companies, they are more likely to hire contractors over permanent staff as they are more flexible to working hours. This also provides you with the ability to build yourself a network of fellow contractors or businesses that might be interested in hiring your services in the future.
What are the valid business expenses you can claim when IR35 contracting?
There are a number of expenses that a contractor can claim when IR35 contracting, however the best way to identify an expense is to think about what your business or you as a contractor need on a daily basis. So, here is a list and description on what exactly you can claim and in what circumstances you can claim it.
Travel Expenses: Claiming for travel expenses when you are IT35 contracting is quite simple as you will need to keep the receipts that you gather when travelling. For example, if you are travelling to a temporary work office, client meetings or even a client’s office via train or bus then you can claim this back. However, claiming expenses when it comes to travelling with your own vehicle can be difficult. The way this is worked out by HMRC is via mileage. With a car this is 45 pence per mile for the first 10,000 miles you do per year, after this amount it is 25 pence per mile. If you cycle then you can also claim mileage on that as well which equates to 20 pence per mile.
One thing to note about claiming travel expenses when you are IR35 contracting is that you can claim these expenses for up to 24 months. Any time after this and you are considered by HMRC to be a full-time employee of client/company you are working for.
Equipment: One of the many things that you will be able to claim expenses on are physical items like IT equipment, furniture, stationary and just about anything you need to run your business. One of the main points to remember about taking expenses when it comes to equipment is that if you use certain items for personal use then you cannot claim expenses with them.
Certain services: Sometimes you need to have certain services to run your business. These services can be things like accountants, solicitors, marketing professionals, insurance services and tax consultants. If you are IR35 contracting with your own limited company then you can claim that these are expenses that you need to run your business effectively. Of course, HMRC will have to take these under assessment and you will have to prove that you need them to run your independent business.
Professional subscriptions: Luckily HMRC recognises that certain contractors need personal tools like subscriptions to business publications, expert advice and certain memberships. Of course, you have to make sure that the professional body of HMRC is approving of this type of expense as some membership fees are not considered available for expense. You can check this via going to the HMRC recognised bodies list.
Business starting up costs: Something that is very helpful when it comes to IR35 contracting is that if you decide to setup your small limited company for your work, you can actually claim expenses for this. Recording these expenses is key, especially before the company starts trading of course. Of course, these expenses need to be met within the business expense criteria. If you are claiming corporation tax expenses then it must not be older than 7 years and for the purposes of VAT then no older than 6 months.
Entertainment purposes: Although you cannot necessarily claim expenses on many entertainment expenses. You can for employee Christmas parties for example. You can receive a tax exemption of £150 per head on many social events that run on an annual basis. You can do this for other entertainment purposes such as other parties and gifts for clients that don’t include food or alcohol of course.
What about what I cannot claim?
The best way to figure this out is by simply checking out the HMRC website. Of course, when IR35 contracting there are a few things you can figure out that you won’t be able to claim expenses on. Including, fines, shareholder dividends and a couple of legal fees as well. But as we mentioned earlier it is best to check out the HMRC website just to make sure.
The best way to make sure you know what you can and cannot claim is to start documenting all of your expenses. This way, you can keep track of what you think you can and what you think you cannot. Then as a bulk send them over to HMRC and they will tell you what you can and cannot claim. If there is too much for you to document then you can always hire a contractor accountant who can easily keep track of all of your expenses and will answer any queries you might have in regards to expenses.
Why choose Comparison Contractor for your IR35 contracting expertise?
Comparison Contractor can provide you with easy comparisons from the best umbrella companies and accountants from the United Kingdom. We service over 200 contractors every day and can provide you with a number of incredible offers that will benefit you. Not only are our specialists trained in many different areas and know the ins and outs of IR35 contracting knowledge but they are courteous and friendly. You are in safe hands when it comes to our team, as they will inform you of the best practical solutions to your IR35 contracting issues and generally answer any questions you might have.
Fill out one of the many forms on our website and one of our incredible team will give you a call back within seconds. Equally you can subscribe to our newsletter, which will inform you about any changes to IR35 contracting, the contracting world in general, our website, company, any offers we have and latest news.
Here at Comparison Contractor, we take pride in knowing that we are here to help in anyway we can with our clients whether they are looking for a new field of work, or just generally asking some different questions about IR35 contracting then you are free to do so with us here at Comparison Contractor. Need help with your banking? Or have any queries about it? Then take a look at our banking page and apply for a Cashplus business bank account today within just five minutes. You don’t need anything to do with credit scores all you need Is the necessary paper work at hand and you will have your very own Cashplus business bank account in just under five minutes! How easy is that for your IR35 contracting start in 2020? Apply now!