Ir35 Tax Rule Info For Sub Contractors

[Goldspark]

The IR35 tax legislation rules can have an effect on self-employed sub contractors and whether they are deemed to be inside or outside of the ruling. It could also apply to companies that employ Labour Only subbies:

In recent years the building industry has seen an increase in independent / freelance workers or 'subbies'. It's an easier way for companies to 'hire and fire' labour when needed without having to fully employ workers under PAYE.

Workers sometimes left their PAYE employment and went self-employed and were then taken back on by the same employer as a sub-contractor. This was an easy way for them to reduce the tax they paid and was also less expensive for their employer who didn't need to pay employer's contributions, sick pay or holiday pay.

The Inland Revenue use the IR35 rule to assess the way that tax is calculated. In cases where services could be seen to be provided in the same way as if you were employed via PAYE by the company it could be deemed as breaking the rules. Labour only sub-contractors who provide services for mainly for one company could be at risk of investigation.

You generally need to be assessed as being outside of the IR35 tax rules if you're self-employed. If you're inside the IR35 ruling then you could be deemed to be breaking the inland revenue tax rules and both employer and subby could be liable for prosecution. More info here> http://www.electrici...ub-contractors/

One method for labour only sub contractors to be used by a company is where they are paid by a third party like an agency, as long as all the CIS tax requirements are complied with.

 

[ProDave]

So what's new?

I often work as a labour only subbie to a couple of local builders under the CIS tax deduction system. don't tell me that's all changing?

 

[Sidewinder]

NO PD, the IR35 has been around for ages, it is only normally applied if you do 100% or approaching that for a single client.

 

[ProDave]

Thanks. Explained better than the first posting.

 

[wozz]

this has been going on for years and years and nothing changes.

IR should know if you make it too hard to have subbies companies will start laying them off, bad for everyone.

 

[Steve3948]

If anything it's a bit more acceptable now what with any work is better than no work.

When they first applied this ruling it caused no end of problems for everyone except HMRC.

It's been around for a good 5-10 years, just be seen to be taking a risk.

 

[Goldspark]

The reason I posted this thread was because I couldn't find anything about IR35 on Talk Forum and thought that it was important for new subbies to be aware of for the future. Someone starting out as a sub contractor needs to know about the pros and cons of the labour market, the options and where they stand with regard to the Inland Revenue rules. I'm no expert and it's good to learn from the experiences of others.

I agree. It has been going on for years. Probably as long as the Inland Revenue have been aware that the building industry uses labour only sub contractors. Some would say that the rumours of IR purges are started by accountants to stir up some business and this could be true in some cases.

There have been a few rumours of IR purges on subbies that I've been aware of. About 15 years ago I was one of 4 electricians working labour only for a stretch for a small electrical firm. Their accountants advised us that it was not a good position to be in so we drew up an agreement and formed a partnership.

About 10 years ago I recall that several of the building companies that I worked for were advised to persuade their subbies to go on the cards (PAYE) because of a IR purge. Many of them did and it cost the companies quite a bit in extra overheads. The IR's view was that it was to clamp down on the unofficial labour market. I don't think it made any difference to those working illegally on the dark side. They just kept on taking the cash and weren't even in the system. It was eveyone else that was legit that got clobbered.

In those days we had 714 docket books which had to be signed by both parties when your tax was stopped. They were a good way of keeping record of your actual earnings, stoppages and materials used. I think they were a much better system than today where you just give your UTR Ref to the company and that hope they pay your tax and give you a receipt at the end of the month.

Even though the IR35 rule has been around for a while and you don't often hear of anyone actually being prosecuted it's still worth being aware of the tax rules. Especially if you are working for one company for long periods labour only. It's interesting to find out how other sparkies handle it, such as ocasionally supplying materials or working through an agency.

I'm not trying to start another scare story but things are tight for everyone including the IR. They have taken on hundreds of investigators to clamp down where ever they can and subbies and employers with a track record of labour only payments are easy game. Simply saying that the rule has been around for a long time and that nothing ever happens won't be much protection when the revenue calls. :Salute

 

[steptoe]

Im in a very similar situation,

I do a fair bit of labour only subby work for my old firm, but everything is price work,

we have been talking recently about materials as well as this was brought up recently by their accountants, but it seems that as I only do price work and I am seen to be taking a financial risk it makes me self employed,

I dont have set hours, or a set amount of work in any week, some weeks it may only be one day[or none], others it may be £1000 worth of work, there are even weeks where I intentionally dont invoice for any work even if I have donr some for them.

if I understand it correctly it is more to do with people doing a set number of hours for a set price per hour, in those circumstances they are not undertaking any form of financial risk.