Hi,
This is my first and possibly last post so please don't rip too many holes in me. Anyway I have the following conundrum.
In 2018 I was hired on a contract, the engagement was on what I would call normal freelance terms - payment on invoice to my limited company, reimbursement of agreed costs and my company liable for anything else. Among the agreed costs incidentally was travel and food, which was significant as the job involved working in multiple locations and staying in hotels organized (and paid for directly) by the client.
All was well until I made the mistake of reading something online about IR35 and the fact that one of the things that can trap you inside it is the level of control the client has over the work. For several reasons the working methods were extremely standardized across everyone working on this particular project so I arguably did not have control over how I did the work and the nature of it (on land owned by third parties) meant that when and where I worked was also not under my control. Worried by this I tried a number of online 'IR35 tests' with inconsistent results and so asked advice from my accountant.
What I was told was.
HMRC could decide on a whim to check if they considered me inside IR35 and if so fine me heavily,the only way to avoid this was to pre-emptively put myself inside. This meant that I had to ignore the fact part of the money paid to the company was to cover out of pocket costs the client had agreed to meet and pay 95% of the contract to myself as salary. On top of that I was required to deduct income tax, and both employers and employees n.i from that 95%. Finally I had to deduct those things as if I was going to be getting the same amount every month for a full year when in fact the work ran from March to October.
I lost money and while some of it eventually came back as a personal tax rebate I'm still not sure if I handled this right or was advised correctly. It's in my mind today because I saw the Contractor Calculator questionnaire on IR35 and one of the things it said was that it is illegal to deduct employers n.i from employment income.
So now I am lost
- is a fee paid for the personal services of an individual on this kind of basis considered employment income?
- should I have paid the employers n.i out of the 5% that I didn't pay as salary (which wouldn't have covered it), taken on debt to cover it, gone to the client and asked them to pay even though they didn't consider me an employee and I was doing this spontaneously for fear of prosecution?
-Have I overpayed somewhere and if so can I get that money back?
I'm not expecting firm answers, I know that if I decide to pursue this I'll need to go back to the accountant (who I'm otherwise happy with) and possibly seek other more official advice but I hope I can get some pointers to decide if it's worth that hassle.
This is my first and possibly last post so please don't rip too many holes in me. Anyway I have the following conundrum.
In 2018 I was hired on a contract, the engagement was on what I would call normal freelance terms - payment on invoice to my limited company, reimbursement of agreed costs and my company liable for anything else. Among the agreed costs incidentally was travel and food, which was significant as the job involved working in multiple locations and staying in hotels organized (and paid for directly) by the client.
All was well until I made the mistake of reading something online about IR35 and the fact that one of the things that can trap you inside it is the level of control the client has over the work. For several reasons the working methods were extremely standardized across everyone working on this particular project so I arguably did not have control over how I did the work and the nature of it (on land owned by third parties) meant that when and where I worked was also not under my control. Worried by this I tried a number of online 'IR35 tests' with inconsistent results and so asked advice from my accountant.
What I was told was.
HMRC could decide on a whim to check if they considered me inside IR35 and if so fine me heavily,the only way to avoid this was to pre-emptively put myself inside. This meant that I had to ignore the fact part of the money paid to the company was to cover out of pocket costs the client had agreed to meet and pay 95% of the contract to myself as salary. On top of that I was required to deduct income tax, and both employers and employees n.i from that 95%. Finally I had to deduct those things as if I was going to be getting the same amount every month for a full year when in fact the work ran from March to October.
I lost money and while some of it eventually came back as a personal tax rebate I'm still not sure if I handled this right or was advised correctly. It's in my mind today because I saw the Contractor Calculator questionnaire on IR35 and one of the things it said was that it is illegal to deduct employers n.i from employment income.
So now I am lost
- is a fee paid for the personal services of an individual on this kind of basis considered employment income?
- should I have paid the employers n.i out of the 5% that I didn't pay as salary (which wouldn't have covered it), taken on debt to cover it, gone to the client and asked them to pay even though they didn't consider me an employee and I was doing this spontaneously for fear of prosecution?
-Have I overpayed somewhere and if so can I get that money back?
I'm not expecting firm answers, I know that if I decide to pursue this I'll need to go back to the accountant (who I'm otherwise happy with) and possibly seek other more official advice but I hope I can get some pointers to decide if it's worth that hassle.
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