Example
of a Basic Calculation
|
| Income
(net of VAT) |
£
10,000 |
| Less:
5% allowance for overheads |
(500) |
| |
9,500 |
| Less:
Specific contract expenses (VAT
inclusive) |
(1,000) |
| Less:
Gross salary (and Employer’s NIC)
paid |
(2,000) |
| Less:
Taxed benefits in kind |
(500) |
| Less:
Pension contributions made |
(1,000) |
| Gross
IR35 Profit |
5,000 |
| Employer’s
NIC 12.2/112.2 x 50 |
1,100 |
| Deemed
Salary to be included in payroll |
3,900 |
|
Notes
- The figures are for receipts and payments in the fiscal year
- The 5% relief is intended to cover all general overheads including
training.
- The restrictive Schedule E rules apply in identifying relevant
expenses.
|
The Judicial review
A judicial review of taxation legislation is a very rare
event. The fact that the Professional Contractors group was able to gain
such a review to air concerns over the fundamental principles of IR35 was
a significant achievement in itself. They were requesting European Law to
override UK legislation. Although it was recognised that there is an
element of discrimination in the IR35 provisions this is was found not to
be sufficient to justify the EU overriding the UK Government. The comments
on the recommended approach to determining whether a contract is a
“relevant contract” include the following:
The review is still on a contract by contract basis
|
|
It must consider whether the individual is in business
on his own account-
- Extent of financial risk
- Range of other contracts in past/at present
- Equipment provided (lesser test if in IT)
It must consider the terms on which these services are provided.
- Contracts in place
- Notional contract between contractor and client
- What are duties/responsibilities
- What is level of control applied by client
- What is responsibility to provide future services/future work
- Obligations regarding sick pay/holiday pay
- Level of constraints on using substitutes
- Comparison of terms with employees
Where the Inland Revenue obtains details of
Agency/client arrangements not available to the individuals concerned
these must be made available.
Standard Agency contracts
- May be set aside if they do not reflect true
arrangements
- Are not automatically employment contracts if over a
month
Essential that there is a sensitive and cooperative
approach to the issues.
The balance of weighting for the
various tests has changed. This may change again in later hearings. In the
meantime contracts should be kept under review and where an agency is
involved the practical arrangements between the contractor and client
should be agreed and documented.
|
