IR35 Implication

[ZoppZ]

I have a limited company going since 2001. The company was opened as a start-up to develop and sell software, and associated services. Because of lack of funding, we are making slow progress but making some progress. Meanwhile since April 2006, I have been working as a contractor to fund business development, including sales & marking and software.

The contract clearly fall into IR35 trap. But money is used to develop the software, attending trade shows (as presenter), trademark regisratration, virtual office, etc. Also, I plan to take on people who are willing to work parttime for shares/share options. If is possible these people may go contracting via my company to help fund business development.

I take small salary, have not taken any dividends so far but intend to do so this year. Given the above information, do I need to worry about IR35?

ZZ

[kingshuk]

Given the above information, do I need to worry about IR35?

Yes. IR35 is per contract basis. Not on the basis of how a Ltd company runs.

Very unfair IMHO. But unforutnately that is how it is.

[ZoppZ]

Yes. IR35 is per contract basis. Not on the basis of how a Ltd company runs.

Very unfair IMHO. But unforutnately that is how it is.

Encouraging Enterprise...rewarding risktaker!!! Unfair indeed.

[tim123]

Encouraging Enterprise...rewarding risktaker!!! Unfair indeed.

No, it's to stop people who are really employess, claiming that they are not by doing 2 nano seconds a week of self employed work.

Risk takers are rewarded by the taxation regime that pertains to that part of their income which is the result of the risk. Why do you think it is reasonable to expect that regiem to pertain to all income, just because you take a risk with some of it?

tim

[ZoppZ]

No, it's to stop people who are really employess, claiming that they are not by doing 2 nano seconds a week of self employed work.

Risk takers are rewarded by the taxation regime that pertains to that part of their income which is the result of the risk. Why do you think it is reasonable to expect that regiem to pertain to all income, just because you take a risk with some of it?

tim

I understood 1st part of the agrument but not the second. I can't find the funding without giving away best part of my company so I go out, earn money, invest it, work 12-14 hours per day... only to find that I might be taxed... UNFAIR .

There is got be way around this. How can I show that I am investing and reap the long term benefits? Any ideas, hints, tips welcome.

[kingshuk]

There is got be way around this. How can I show that I am investing and reap the long term benefits? Any ideas, hints, tips welcome.

I am no expert in this. My earlier post was also based on what I had read (in forums, earlier IR35 cases in HMRC websites) recently when I started contracting. In my simple [and untrained/unqualified in legal matters] mind you seem to be running a valid business. But may be HMRC will not agree.

Most people in this forum are contractors, not lawyers.

Why don't you seek advice about your paritcular situation from some legal experts who specialize in this area?

Google search based on "IR35 contract review" etc yields quite a few results.

One such firm 'Bauer and Cottrell' - http://www.bauerandcottrell.co.uk/ is quite heavily recommended in this forum. There are many others as well.

[ZoppZ]

Thanks Guys, I am seeing an expert next week. Any useful tips I will put on the board.

[VectraMan]

You'll be in a situation where you're being personally taxed on money you've never earned. It's the perfect example of everything that's wrong with all this. It really ought to be based on the money you actually pay yourself, not the money the business earns.

Of course, few contractors really do this sort of thing (I nearly did but that's all gone a bit wrong at this stage).

[kingshuk]

Any useful tips I will put on the board.

I am just starting off in contracting and have similar plans to develop a product and sell consultancy services around it. Want to keep most of the money the company earns in cash reserve to be used eventually for promotions, ads etc.

So will be very interested to see how your situation is viewed from the tax man's perspective. Will look forward to your post.

[ASB]

ZoppZ,

As a general principle if you have significant asset in your busines then there is precedent to determine that a contractural relationship between your business and a client could *never* be one of employment.

This is fine in the real world. In the IR35 world of course an inferred contract is used which would muddy the waters.

Of course there is no definition of significant. If you are retaining a significant porton of the income for development purposes then even if your contract itself is dodgy this might give you a reasonble proposect of being outside.