In recent years, an increasing number of contractor accountants have marketed themselves as ‘IR35 accountants’.
Have these firms suddenly been gifted a silver bullet against IR35, or is this just a marketing phrase?
Unsurprisingly, in a similar fashion to the way umbrella companies have labelled themselves as ‘IR35 compliant’ in the past, this term is merely aimed at catching the eye of contractors (and search engines) in an increasingly competitive market.
Is your accountant a contractor specialist?
Accountants have no power to determine whether their clients are caught by IR35, but it is important to choose a firm with in-depth knowledge of IR35 and the Off-Payroll rules when choosing an accountant.
A good accountant can explain the financial consequences of falling inside the IR35 net and what measures contractors should take to comply with the rules.
For this reason, we always recommend that our visitors choose a specialist contractor accountant to handle their limited company (and personal) tax affairs.
Accounting for IR35 status
Whether or not you are caught by IR35 or not makes little difference to an accountant’s workload.
If, as you hope, your contract work is not caught by IR35, you will draw down income from your company in the form of a modest salary and the remainder distributed as dividends. This is the most tax-efficient way to operate as a contractor.
If the Chapter 8 IR35 rules apply — for example, where your private-sector client qualifies as small for the purposes of the off-payroll working rules — your company remains responsible for determining the tax consequences of IR35. If the engagement is caught, the company must calculate a deemed employment payment. A fixed 5% deduction from the relevant income is allowed for general expenses before the deemed employment payment is calculated.
The position is different where the Chapter 10 Off-Payroll rules apply. If the client determines that the engagement is inside IR35, the fee-payer is generally responsible for deducting PAYE income tax and employee National Insurance contributions before paying the balance to your company. Employer’s National Insurance contributions, and the Apprenticeship Levy where applicable, are also accounted for by the fee-payer. The 5% expenses allowance does not apply under Chapter 10.
Understandably, there is a significant difference in the take home pay of contractors inside and outside of IR35.
How to mitigate against IR35
A contractor specialist accountant should do several things to help their clients comply with the IR35 rules.
Firstly, and most importantly, your contract and working practices should demonstrate that you are not merely a ‘disguised employee’ and fall outside IR35.
Since the roll-out of the Off Payroll rules in both the public sector (2017) and private sector (2021), some end-clients may force you either to accept being an ‘inside IR35’ contractor – still working via your company.
Where this happens under Chapter 10, the fee-payer will generally operate PAYE and National Insurance on the payment before the balance is paid to your company.
Or, they may insist that you use an umbrella company. In the latter case, you may decide to keep your limited company running in the meantime, or make it dormant. Your accountant can advise on the best way to do this.
Many accountants refer their clients to a professional contract review service that examines each contract’s terms and provides guidance accordingly.
Other steps include taking out IR35 insurance to cover the costs of a potential HMRC investigation and, depending on the policy and level of cover, tax liabilities you may subsequently be found to owe.
Contract reviews and other evidence of your contractual terms and actual working practices can also be particularly important where Chapter 8 applies and your company remains responsible for IR35 compliance.
Under Chapter 10, however, the statutory obligation to take reasonable care when determining status rests with the client when it produces its Status Determination Statement (SDS).
A good accountant is worth their weight in gold
Ultimately, while the term “IR35 accountant” may not carry any legal weight, it does highlight the strong demand for specialist knowledge in this area. Whether or not the title is used, what matters is that your accountant:
- Understands the legislation and the nuances of IR35 and the Off Payroll rules.
- Helps you remain compliant.
- Advises on how to maximise your take-home pay — legally.
- Assists in protecting you and your company from HMRC’s unwarranted attention.
In today’s complex contracting landscape, these qualities aren’t just desirable — they’re essential.