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IT Contractor Accountants

5th December 2012

If you are thinking about working as an IT contractor, we highly recommend you seek professional financial advice. We can help with things like setting up a company, ensuring that all your obligations are met on time (such as annual returns, corporation tax returns, etc) and deal with HMRC on your behalf.

One of the most important things for contractors is to ensure that your contracts fall outside the scope of IR35. Workers who own their own companies can be paid through that company, instead of signing an employment contract with a client. This is financially beneficial for the worker, as a) he can receive money from the company through dividends, which do not incur national insurance contributions and b) can split the ownership of the company with family members, in order to place income in lower tax bands.

IR35 was introduced in 1999 as a measure to counter tax avoidance by the use of personal service companies. The system described above was seen by HMRC to be being ‘abused’ by companies who, whilst normally employing people (and thus paying NICs), hiring the same people as contractors, through limited companies. Recently the Public Accounts Committee published a report investigating the extent of so-called ‘off-payroll’ payments to public sector employees, including the BBC who reportedly had 25,000 such contracts, 13,000 of which were for people on-air.

The key points to consider when ensuring contracts are outside IR35 are;

Would you be an employee if you worked for your client directly and not through your company or partnership?

Does the company or partnership you work through meet the conditions set out below?

Some guidelines to answer the above questions can be found on the HMRC website here, but for a detailed review or if you have any other questions, you should contact a lawyer or chartered accountant.