Control as an IR35 Factor

Control - IR35 Factor

Control a Major IR35 Factor

One of the big three factors as regards whether a freelancer is caught by IR35 or not is Control & Direction. Is it a master / servant relationship or is it one between equals. There are two parts to control. The first is what the contract says. Is it a Contract of Service or is it a Contract for Services?

The second is what is the relationship in reality? The judge can override the contract if the reality on the ground is actually a relationship of master / servant.

The most important thing here is for the freelancers to differentiate themselves and their way of working as far as possible from the permanent employee.

Employee v Freelancer

1. Control – The boss, or controlling person, tells the employee what to do and he, or she, does it. The freelancer decides what needs doing and does it after a broad outline form the client. What contractor negotiates what to do with the client. They put an agreement between two equals, supplier and customers, in place.

2. The boss tells an employee how to do a task. The freelancer decides how to do  the task. So, there is no control of the freelancer

3. The employer supervises the employee during the performance of a task whereas a freelancer is self supervised. So, there is no control.

Agreeing the Timeframe

4. The employer tells the employee how long a task will take and he, or she, tries to do it within that time. The freelancer negotiates how long a task will take with the client and agrees the timeframe. So, he or she is not under their control.

5. The company tells the employee where the task should be done. The freelancer decides where the task should be done, at the office or at home or elsewhere. He, or she, will negotiate this with the client. Minute that you negotiated an agreement between equals about where it is best that the work takes place. So, there is no control here.

6. The company tells the employee which equipment he, or she, should use, e.g. the PC to complete the task. The Freelancer will decide himself, or herself, which equipment is best to use for the task whether it is his or her own PC or the companies. He, or she, will negotiate this with the client. Again there is no control.

Company Hierarchy Chart

7. The Company will place the Employee on the Company’s Hierarchy Chart showing whom he, or she, reports in to. The Freelancer will not appear on this chart. So, there is no control of the freelancer.

Indeed it would be best that you draw an East-West Chart  showing two bubbles or two boxes with arrows going between the two showing a supplier / customer relationship and what needs to be supplied by the contractor to the client (and vice versa). Furthermore, both parties should sign his chart as showing the nature of the relationship.

Differentiating Freelancers and Employees

If all of these hold true then this is a contract for services. However, even if some of them are true this differentiates freelancers from employees.

It is all about differentiating yourself from company employees as much as possible via the contract and the actual working practices.

PSC Contractors Spared by Chancellor in Autumn Statement

PSC Contractors Spared by Chancellor in Autumn Statement

PSC Contractors Spared

There was a huge sig of relief for PSC contractors spared by Chancellor George Osborne in gis Autumns Statement today.

That doesn’t apply to umbrella company contractors, though.

The Chancellor confirmed, today, that tax relief for travel and subsistence was going to be taken away from umbrella company contractors from April.

That was expected.

It was also expected that he would take it away from personal service company contractors too,

Indeed he said as much a few months back in July.

Travel and Subsistence Expenses

However, he changed his mind today after consultation (or lobbying if you like).

He is only going to take away tax relief from travel and subsistence expenses for those PSC contractors who are caught by the Intermediaries Legislation, known to you, and I, as IR35.

That seems a bit odd as first as contractors would not have limited companies if they were caught by IR35.

They would either pay the IR35 tax (very few of them in practice) or join an umbrella company.

He must mean that any contractors who use a personal service company but who are found to be caught by IR35 will not be able to offset travel and subsistence against tax.

Accountants and PSC Owners

There’s still the Finance Bill on December 9th which will contain more details.

So, those PSC Contractors spared by Chancellor Osborne will still be a bit nervous till they hear what the detail is in that.

However it does look like a good day for personal service company contractors and their Accountants.

Umbrella Company Owners

The same can’t be said for umbrella company owners and umbrella company contractors.

Those contractors will now be looking at their options now that they will not be able to claim their travel and subsistence against tax.

It could well be that the amount of money that they are able to offset against tax will be less than the monthly fees that they have to pay their umbrella company for basically paying them each week or month.

They are sure to be weighing up their options.

Personal Service Companies Tax Relief Axed by Chancellor

Personal Service Companies Tax Relief

It looks as if contracting will be much less lucrative in the future as the Chancellor took his axe to personal service companies tax relief.

Contractors have, traditionally, been able to claim tax relief against travel and subsistence expenses.

They could claim tax relief on the cost of their travel from their ‘office’ at their own premises to that of their client.

If they stayed overnight they could claim accommodation expenses and any further subsistence expenses that they incurred while doing so.

Contractors’ Limited Companies

Now, the Chancellor has taken this away in the Budget.

He has targeted those who are sole workers for contractors’ limited companies, i.e. those who use them as personal service companies.

In future, contractors will be unable to claim any tax relief against travel and subsistence expenses.

Other Options for UK Contractors

So, what will UK contractors do now that personal service companies tax relief is gone?

Will it now make it more attractive for them to move to onshore umbrella companies?

No, it won’t!

The Chancellor has hit them with the same measure. He’s cut their tax relief on travel and subsistence expenses too.

Indeed, as that is the main reason for being in umbrella companies for those caught by IR35, contractors in umbrella companies will be re-assessing their options and many of the UK’s 200,000 umbrella company contractors may well decide to move out of umbrella companies altogether.

Tax Vehicles for Contractors

So, where would the umbrella companies contractors go?

They might go back into Limited Companies, if they can become IR35 de-toxified.

However, as we’ve seen above, being in a personal service company is no longer as lucrative, as less tax relief can be gained.

So, what are the other options for UK Contractors?

Are there options that the Chancellor hasn’t touched?

There are indeed!

Offshore Umbrella Companies

The first one is one that the Chancellor can’t touch as it is offshore and that is Offshore Umbrella Companies which return 85% or more to UK contractors.

These operate via loans.

The contractor sends his, or her, money offshore and they are given loans in lieu of it.

They would have to pay tax on the money when it came back onshore but it never does as the contractor has got loans in lieu of it.

Offshore Loans Lapse

So, what happens to the loan? Does the contractor have to pay it back?

The answer to that is No.

Loans lapse when a person dies. They are not passed on to the next generation.

So, when the contractor eventually passes on, the loan disappears too.

Loans Not Taxable

Loans aren’t taxable.

The Government can’t make them taxable as that would play havoc with our banking system, which is a huge earner for the country, the Government and the Treasury.

There would be all hell to pay, as well, if they made loans pass on to the next generation. Conservative pensioner voters would be up in arms at that one.

Are there any more options for those losing personal service companies tax relief?

Limited Partnerships

There’s a new one called Limited Partnerships.

Limited Partnerships aren’t new as they have been used by other professions for many years.

However, they are new to contractors.

There is a slight difference to other professions in that the contractor doesn’t partner with other contractors but with a company set up by those who set up limited partnerships.

The self- employed contractor is in partnership with the company.

85% Returns

They can return up to 85% to contractors who use to efficient tax planning using those  limited partnerships.

For more details on limited partnerships click on Limited Partnerships for UK Contractors

For more details on offshore umbrella companies click on Offshore Umbrella Companies for Contractors

Contractor Expenses – How Much Can I Claim?

Contractor Expenses

Contractor Expenses – How Much Can I Claim was sent to us by a reader.


– Hello, I have just gone back into IT contracting after a few years in permie, but quite a lot has changed while I have been away.

Anyway, I’m contracting through my limited company now instead of using a brolly like I used to.

What’s the deal with contractor expenses these days?

Can I claim travel expenses to the client’s site?


Percentage of household bills for running my home office?


Public Liability insurance?

Accountants fees?

IT equipment?

Anything else?

Thanks very much for your help.

Top Accountant on Contractor Expenses

A lot will depend on whether you are caught under IR35….if so then 5% of your income will be allowable for contractor expenses.

If you are outside IR35 then you can claim for things like :-

i) Accountants fees;
ii) Insurances;
iii) Postage & Stationery;
iv) IT Consumables;
v) Mileage;
vi) Other expenses under a dispensation (eg. night & day allowances);
vii) Office rent;
viii) Subscriptions;
ix) Capital allowances on equipment


Hope this helps?

Accountant 2 – Fresh Blue

I don’t know if Accountant 1 is 100% correct as you can claim for schedule E expenses regardless of IR35 status (as I understand it). E.g. travel to work (assuming you meet IR site based rules etc) and the other stuff.

The 5% inside of IR35 relates to how much of your taxable income you can set aside for other entrepreneurial type expenses and not just simply business expenses.

Ferpferp Question

Thanks for the advice on contractor expenses

I believe I’ll probably fall inside ir35, even though I have an IR35 ‘friendly’ contract, and my current contract is for only 6 months. I hope it’ll extend, but even if it doesn’t I’m likely to do a similar job for someone else that will surely be deemed as working directly for the client by the IR.

I guess I need more advice on that, but anyway – can anyone tell me the contractor expenses rates for mileage – i.e. 25p/mile for first 10000 miles or something is it?

FreshBlue Reply

40p for the 1st 10,000 and 25p thereafter (assuming car).

High Street Accountants can Damage Contractor wealth

High Street Accountants

We hear why hiring high street accountants can cost IT contractors a lot of money. It is better to choose specialist contractor accountants than high street accountants.

Lack of Knowledge

Contract workers who take the wrong advice from high street accountants could find themselves thousands of pounds out-of-pocket. This is according to a survey carried out by specialist contracting firm Freelance World.

Lack of detailed knowledge of legislation affecting freelancers and a worryingly vague attitude to the need for compliance with the legislation were just two of the findings revealed in the survey from the Aberdeen-based firm.

Contractors, who trust their financial affairs to less-than-expert advisors could find themselves faced with hefty fines from Her Majesty’s Revenue and Customs (HMRC). Their names placed on a credit blacklist warned Freelance World managing director Alasdair McGill.

Survey of High Street Accountants

Freelance World conducted a mystery-shopper survey this month of more than a dozen general high street accountants in the north-east and elsewhere in the UK. This was to find out what advice they could give to prospective contracting clients.

Alasdair McGill, said: “We have been genuinely alarmed at the poor advice being given by some firms to prospective clients. It is like going to a GP for treatment when you really need to see a specialist consultant. It is quite clear that many high street accountancy firms simply do not have the expertise to advise contractors on key legislation, compliance and management of their specific requirements.”

Prohibited Service Offered

One accountant offered an off-the-shelf incorporation service. This is a practise that is prohibited by the Managed Service Companies legislation of 2007. Another told a Freelance World researcher that they “didn’t need to worry about IR35”. This is the key legislation that revolutionised the contracting industry and meant contractors can be taxed as employees.

Alasdair added: “One responder told us that IR35 had ‘died a death’. That kind of advice could cost a potential client a lot of money and years of credit problems.Tthis is because since the 2009 budget, HMRC can now place people on a tax avoiders’ blacklist for non-compliance.

Limited Companies

Freelance World researchers found that general firms were not offering the full range of options for clients. Instead they were steering them towards choosing limited companies.

Alasdair said: “The only option these firms seemed to offer was to set up limited companies for contractors which is sometimes not the ideal option. Not one suggested options such as using an umbrella company or going PAYE. This is fundamentally against the MSC legislation, which has to be considered by all potential one-person limited company contractors.

Incorrect Advice from High Street Accountants

“I believe it is simply because the high street accountants plainly do not understand the legislation. As a result they are failing to give the correct advice,” said Alasdair.

“What these high street accountants should be telling their prospective clients is that IR35 work should be handled by an employment law specialist who has a detailed understanding of this area of taxation. They shouldn’t be telling them that it is nothing to worry about. High Street Accountants should not be issuing advice on IR35 unless they have real experience of employment status and are confident about defending their clients in front of the tax tribunals.”

Within Scope

The survey made it apparent that none of the high street accountants contacted realised that by offering a contractor targeted solution, they fall within the scope of this legislation and cannot rely on any exemptions simply because they are registered accountants.

Alasdair said: “Freelance World is also a registered accountancy firm. However, we understand that because we deal with contractors amongst our other clients we need to be fully aware of this legislation. We have undergone three third-party audits to ensure we are one of the most compliant businesses in the market. ”

“Most contractors do not understand the legislation that governs them as freelancers and contractors as much as they should. That is why it is crucial they get the correct advice. The ultimate consequence is that they could end up with a huge charge from HMRC or appear on a credit blacklist.”

For a list of specialist contractor accountants click on Accountants Directory

Specialist Contractor Accountants and their Contractors

Specialist Contractor Accountants

Specialist Contractor Accountants can be contractors’ best friends. Too many contractors hide away when they have tax problems.

It happens sometimes. It’s the very nature of the job. There come around times when the economy is bad, there are few contracts about and contractors can spend months on the bench.

As they don’t sign on, they use up the money they have set aside. When that is gone the mortgage still has to be paid, the car loan has to be paid and, if he or she, is married the kids need to be fed and clothes bought.

Tax Money

The contractor then dips into the money he or she has set aside for tax. They start to get letters from HMRC and they ignore them.

This is the time when Specialist Contractor Accountants are most needed by contractors. However, what the contractor usually does is hide away.

This is a huge mistake.

In Touch

They should keep their specialist contractor accountant in touch with what is happening at all times. Your accountant will know the best way forward at all times. You are not the first person that this has happened to.

I remember being in a desperate state when I had been out of contract for a while. I finally called my specialist contractor accountant.

I was astonished when he started laughing. “It’s not a problem. You should have called me sooner”.

Move On

He said “If you don’t have any money they can’t take it off you. What can they do? It’s not worth their while pursuing you if you have no money.

“They simply go on to the next case which would be a better use of their time. They may even be on a bonus for the money they recover and they won’t want to spend too much time on you”.


“They could put me in jail” I said.

He laughed again. “Why”” he asked? “Have you got a few million salted away in Switzerland like Lester Piggott?”

“No” I said.

“They seldom put anyone in jail unless they are not being truthful” he said. “Piggott lied to them and said he had no more money when he signed the document. They found out that wasn’t true.”

I must admit that I felt a lot better after that. I wished I’d called him earlier.

Best Friends

Specialist Contractor Accountants are contractors’ best friends. Don’t hide away from them when you are in trouble.

Embrace them!

Keep them in touch with what is going on and you’ll get the best advice from them and the best way forward.

For a list of good Specialist Contractor Accounts see Specialist Contractor Accountants List

Applying for Contractor Mortgages

If you want to find out more see Specialist Contractor Mortgages

To apply for one of those specialist contractor mortgages see Contractor Mortgages Application


Choosing a Contractor Accountant. Top 10 Tips on How

Choosing a Contractor Accountant

Choosing a Contractor Accountant is one of the most important decisions you will take as a contractor. Contractor Accountants can be a contractor’s best friend if chosen well and used wisely. Here are the top ten tips to help you.

1) Make sure, when you are choosing a Contractor Accountant, that the Accountant has previous experience of dealing with contractors. Ask him or her how many contractors he or she has on their books. There is a morass of legislation, like IR35, that is aimed specifically at freelancers. It is crucial that your Accountant is up-to-date with all the legislation.

2) Make sure, when you are choosing a contractor accountant, that the Accountant has previous experience of your sector. If, for example, you are an IT Contractor, it is very useful if the Accountant has good knowledge of the sector.

3) When choosing a contractor accountant, choose the size of Accountancy firm that suits you. Some people may prefer to go with a large organisation with vast experience of the business. However, you may be dealing with someone low down the organisation. Others may prefer a small firm where you are dealing with the owner or partner of the Accountancy company.

4) When choosing a contractor accountant, meet up with several Accountancy firms. Let them know that you are doing this so that you can get the best offer for the best service.

5) When choosing a contractor accountant, decide beforehand whether you want the Contractor Accountant to do all the admin. You are happy to do a lot of the book-keeping with the Accountant mainly giving advice and doing your end-of-year returns. Once you have decided yourself what you want to do and what you want the accountant to do you can then ask the price. Ask the Accountant for a full list of services that they can provide as you may not have though of everything.

6) When choosing a contractor accountant, ask the Contractor Accountant what professional accountancy qualifications they have, e.g. from bodies like ACCA or ICAEW. Although having a professional qualification does not necessarily mean that they are good accountants, it saves you from being fleeced by a cowboy Accountant with no professional qualifications.

7) When choosing a contractor accountant, ask them if they have Indemnity or Liability Insurance. If they make a mistake with your tax returns you would want to be able to recover the money for it.

8) When choosing a contractor accountant, ask to be able to talk to some contractors from your sector that they already have as customers. It’s always good to have a recommendation and to be able to ask questions of someone who has used the accountant.

9) When choosing a contractor accountant, agree all fees upfront. Have them written down and signed. The last thing you want is for some extra charge to be levied on you that you didn’t know about and some office clerk telling you “Oh, all our clients have to pay that”. Find out of you are ‘on the clock’ when you call the Contractor Accountant or whether that is all part of the service.

10) Most important of all – keep in touch with your Accountant. This is especially true if you are in tax trouble. Many contractors hide away from their Accountant when they have been out of work for a while and have spent some or all of the money they have saved for tax. This is the time when you should be getting your Contractor Accountants advice. As my Accountant once said to me “You should have called me. What can they do? If you haven’t got any money they can’t take it off you. It’s not worth their while. They’ll just take what they can and get onto the next person”.

Your Accountant is, business-wise, your best friend. Make sure you choose one wisely and make sure that you keep in touch with him or her. Choosing a Contractor Accountant is one of the most important decisions you will make so make sure you put some effort into picking the one that is best for you.

See a good  Accountants Directory here.

Good Specialist Contractor Accountants

Specialist Contractor Accountants

Specialist Contractor Accountants will be able to tell you if you are inside IR35 or not. If you are caught by IR35 they will suggest that you contact an Umbrella Company (although many contractor accountants have an umbrella company scheme of their own).

If you are not caught be IR35 then they will set up a Limited Company (or a Personal Service Company as the Government now calls them) for you.

You would expect to pay somewhere between £500 and £1,500 a year for your specialist contractor accountant’s services and the amount depends on the level of service they give you. However, it is always best to shop around.

Whatever they charge you it will be worthwhile because every good contractor accountant will be able to save you far more in tax than they actually charge you.

Good Advice

They are also a very good source of advice if you get into financial trouble and can’t pay your taxes. Often Freelancers have time out of work and spend the money they have set aside for tax. Often they hide away from their accountant when they do this. However, this is the time when you need a good specialist contractor accountant most.

He or she will suggest various options. As a contractor accountant of mine once said “If you haven’t got any money they can’t take it and they’ll simply move on to the next case”. There are various options like a CVA that they can suggest for you if you really do get into trouble. Indeed, a good contractor accountant could be the best friend a contractor ever had.

Further Info

To see if you are caught by IR35 take the IR35 Test here.

If you are at High or Medium risk either get yourself down to Low Risk or have a look at an assessment of contractor Umbrella Companies – Which Umbrella Company?.

For further info and an assessment of contractor accountants see Which Contractor Accountant?

Tax avoidance |Cameron slams Contractor Accountants

Tax Avoidance

David Cameron slammed ‘clever’ Contractor Accountants who aid tax avoidance for big companies and rich individuals. He said that there was an army of clever Accountants conspiring to “rip off working people and plunder their natural resources” by tax avoidance schemes.

“We can see the results” he said “The government cronies get rich – some beyond their wildest dreams of avarice – while the people stay poor. But actually, all this matters massively to developed countries too. When trade isn’t free we all suffer because of tax avoidance.

“When some businesses aren’t seen to pay their taxes that is corrosive to public trust. When shadowy companies don’t play by the rules that drives more box-ticking and regulation and that makes life harder for other businesses to make a profit.”

Cameron’s objective is to try to get the world’s countries to unite against companies who sell a lot in a country but pay no, or little, tax by loading up costs there so that there is no, or little, profit. He is also targeting the specialist contractor accountants who come up with onshore or offshore schemes that see their clients pay very little tax. This is tax avoidance.

Ian Cameron

Although his campaign may seem a good idea he is taking a bit of a risk here. Firstly, his father Ian made the family fortune by being one of the first to indulge in tax avoidance this way by setting up offshore schemes in places like Switzerland and Panama to avoid paying tax and to profit from helping others to avoid tax. Indeed David Cameron’s inheritance came largely from money made from tax avoidance.

Also his Chancellor, George Osborne, has a £4.5m offshore trust. His father-in-law Lord Astor also operates offshore tax avoidance schemes and the Conservative Party’s major donor Lord Ashcroft does the same.

Think Twice Contractor Accountants

When attacking the companies who don’t pay much tax in the UK he is also taking a chance. Many of those employ thousands of people who pay billions in income tax. Companies already here may think twice about expanding here in this climate. Also, companies thinking of coming here may think twice about it now.

So, if Cameron succeeds in getting the world to tackle tax avoidance then it is worthwhile doing. However, if he doesn’t he is hurting Britain by scaring off companies who may have employed people who would then pay income tax and stop claiming benefits. So, this is not the kind of thing to do without knowing whether you have a chance of succeeding or not.

What you tell your Contractor Accountant isn’t confidential

Not Confidential

Most freelancers assume that what they tell their Contractor Accountants is legally confidential just as it is confidential between yourself and your lawyer. However, this is not so.

In a landmark case a judge has said that the old principle of confidentiality applies only to lawyers and not to specialist Contractor Accountants. He said it was not up to judges to make this relationship confidential. It was up to Parliament.

Your specialist Contractor Accountant has, legally, to reveal what he or she tells you and you legally have to reveal what he or she has told you. It’s not confidential. This landmark ruling comes in a case between the Prudential and HMRC. The ruling by the Supreme Court was by the margin of 5-2.


Predictably HMRC said “Tax avoiders should not be able to conceal their true intentions or arrangements from us”. Most freelancers would have assumed that what you say to your Contractor Accountant stays with him or her and they would not be forced to reveal it to HMRC or a court at a later date.

It also works the other way. If your specialist contractor Accountant gives you advice and you act on it they would legally be obliged to tell HMRC or a court what advice they gave you. One would think that it would now be more dangerous for Accountants to give contractors advice on tax avoidance for one thing and that is why HMRC appear to be delighted with this judgement.


Specialist Contractor Accountants won’t be so pleased with this nor will freelancers. It was assumed that the relationship was confidential. It will make them both more cautious about what they say to each other.

If the freelancer gives the Contractor Accountant some information about his or her tax affairs the Accountant could be forced to reveal what that information was at a later date. It is not confidential.

This new ruling is full of pitfalls. It may be that specialist Contractor Accountants try to get some sort of legislation in front of Parliament – but till then there is no Accountant / client confidentiality.

For a review of some good Accountants see Which Contractor Accountant

How the Autumn Statement will affect Contractors and Accountants

Autumn Statement

How will the autumn statement affect Contractors and Contractor Accountants? Here we put the main points.

– Economy fell by 7.2% rather than the previously thought 6.3% in the downturn, one of the worst in the industrialised world.

– There was no double dip recession

– Growth predictions for next few years.2013 – 1.42014 – 2.42015 – 2.22016 – 2.62017 – 2.72018 – 2.7- 400,000 jobs increase forecast.

– Unemployment 7.6 & forecast to fall to 7% by 2015 and  5.6% by 2018.

– Private sector has created 3 jobs for every one lost in the pubic sector.


– Deficit was 11% of GDP when Coalition took office £1 in every £4 of spending was borrowed.

– Underlying deficit falls to 6.8% this year.

– Debt should peak at 80% of GDP in 2015.

– Retirement age to be increased from 65 to 68 in the mid 2030s and 69 in the late 2040s. More details will come later.

– 30% of all income tax is paid by 1% of taxpayers.

– Largest package to attack tax evasion and avoidance to raise £9bn.

– Tax advantages of partnerships to be taken away.

– Capital gains tax on property owners who are not resident in the UK from 2015.

We will have further assessment of how the Autumn statement will affect contractors once we know more about the measures to tackle tax avoidance and evasion. Expect further analysis of the autumn statement.

If you have any questions about the autumn statement you should contact contractor accountants.

3,000 HMRC Contractors to be dumped

HMRC Contractors

HMRC has brought in a voluntary exit scheme for those people who have fixed term contracts. They currently have 3,900 on fixed term contracts and aim only to keep around a 1,000 HMRC Contractors. The rest of them will not be kept on after their contracts end in March.

1,500 are to go in Personal Taxes and a further 500 in Debt Management. Those under threat are those in Devon, Scotland, Northern Ireland and Wales.

HMRC have already cut 34,000 staff and plan 10,000 more by 2015. They said that the reasons for these fresh cuts are that people are now availing themselves of their online services more.


One area where they have not cut back is in the area of IR35 Compliance. Indeed they hired a team of 36 IR35 Compliance officers to hunt down contractors who they think are inside IR35 but operating as Limited Companies.

The unions are opposing these cuts. They said “We have made it clear we oppose the decision not to extend these contracts beyond April 2014 or make the staff permanent”.

Contractor Accountants should be contacted by contractors who are worried.

Hit Performance

They reckon that previous staff cuts have hit HMRC performance but HMRC said  “These are fixed term contract staff whose contracts are coming to an end – these employees never were permanent staff”.

It will extend the contracts of 1,000 HMRC contractors beyond March but wouldn’t say for how long.

They said  “The voluntary exits being offered to staff in 21 offices are as a result of one or more business areas concluding that these offices do not fit with their long-term plans, and that work that is currently being done in them is better placed in other offices”.


It’s very strange that contractors are going to be asked to voluntarily exit HMRC. One wonders what sort of status these contractors have there and whether they are Umbrella Company contractors or Limited Company contractors with Contractor Accountants.

What if some of the HMRC contractors don’t want to leave voluntarily? What then? Are they to be offered payoffs?

It’s a very strange situation.

As one knows, at a lot of places, the contractors, who have lots more experience, carry the permanent staff. Dumping most of their contractors may hit HMRC hard.

David Cameron loves Freelancers


It’s National Freelancers Day today. David Cameron sends a message out across the country to Freelancers everywhere telling them how much he appreciates them.

He called freelancers “the engine of our economy”.

He said, “Our country owes a huge debt of gratitude to the thousands of men and women who have decided to make their living as freelancers and entrepreneurs”.

It sounds as though he is congratulating The Few after the Battle of Britain.

Lifeblood of Our Country

He continued “You have not only taken your own future into your own hands, but you are the engine of our economy and economic revival. Indeed, SMEs are the very lifeblood of our country and of local communities across the land.

“My very best wishes on National Freelancers’ Day.”

IR35 Abolitionist

Of course, this is the same David Cameron who led the Professional Contractors Group to believe that he would abolish IR35 if he came to power as his Coalition partners the LibDems did.

Although all he said was that the Conservatives would ‘look at’ IR35 again.

He set up an IR35 Panel to look at it again. The panel recommended that IR35 should be kept. They said that many freelancers would leave their Umbrella Companies and set up as Limited Company contractors again.

There are 200,000 freelancers operating out of Umbrella Companies now. They pay an average of £10,000 a year more in tax than Limited Company contractors. That’s an extra £2 billion a year for the Treasury.

The Government were happy to take that recommendation.


Of course it was naive to believe, especially at a time when they were making cutbacks, for the Government to hand back £2bn a year to people making £400 a day.

However, that doesn’t excuse Cameron and Osborne from giving winks and nods, prior to the last election, that they would abolish it.

The poor old PCG believed them and rushed out a Press Release just prior to the last election hailing their achievement in getting the Conservatives to ‘look at’ IR35 again.


Not only did they not abolish it but George Osborne, in his budget, said that they would STRENGTHEN IR35. They didn’t tell the PCG that before the last election.

At a time when they were cutting back 56,000 staff at HMRC they set up a new IR35 Compliance Team of 36 people operating out of Edinburgh, Salford and Croydon to pursue freelancers over IR35.

So, it’s nice that he sees Freelancers as the engine of the economy. However, this man has ‘form’ over IR35 and other freelancing matters as Labour did before him.

Note:- Contractor accountants should be asked by contractors for advice.

Many IT Consultants now working from home

Working from Home

Many IT Consultants are now working from home.

According to the latest figures from the Office for National Statistics, around a million people now work from home. This is going back to the way it used to be before the industrial revolution when most jobs were at home in cottage industries.

Many of those working from home are self-employed or operate small businesses from home. However, many web designers and IT Consultants now work from home.

It is the advent of superfast broadband that has enabled this. Previously IT Consultants had to go to the office to be able work properly. However, they can work as easily from home nowadays. The use of tools like Skype have made this more possible.


The numbers of home workers is expected to grow. There are great cost savings to be made from businesses if they have more of their workers and consultants working from home. They would save a fortune on office space.

The better communications are, the more companies will let people work from home. It used to be that the companies would say that they can’t monitor whether people are working at home or not. However, there are ways and means of doing this.


For instance they could tell workers working from home that they must be available via Skype for certain periods of the day and they can monitor whether someone is on Skype or not. Of course someone may have their Skype on but be away from their PC. However, if they do that too often they would be sure to be caught.

Meetings may be a problem but they are becoming less so with the advent of technology. It looks as if the trend is to more home working. The Industrial Revolution decimated most cottage industries. It looks like the Information Age is going to enable many cottage industries to spring up from home.

BBC to scrap Limited Company freelancers

Limited Company Freelancers

The BBC is to scrap Limited Company Freelancers.

According to a report in the Daily Mail, the BBC is going to bring in a new test to determine the status of all its freelancers. A Public Accounts Committee report said that the BBC were using thousands of freelancers who worked there long-term, like Jeremy Paxman, including lots of presenters.

The BBC said that it was imperative that they used freelancers. However, their own report said that they needed to look at it again and who was a freelancer and who wasn’t.

Gone Further

It seems that the BBC has gone further than that. It has told the Government that it will stop hiring Limited Company freelancers in the next month or so. It looks as if this is under pressure from the Public Accounts Committee. There was a huge furore in the Press recently about the number of freelancers that the BBC uses.

Indeed, Jeremy Paxman said that he and others had come under pressure from the BBC to set up Limited Companies which they did. Now it looks like the BBC have gone completely the other way. They now want to outlaw their freelancers using Limited Companies.

Employment Test

They are going to compile an IR35 test to see if someone is actually to be hired as an employee or a freelancer. It looks as if this is good news for the Umbrella Companies. They will have a field day at the BBC as there are currently thousands of them there in Limited Companies.

It looks, long-term, as if the Government favour the use of Umbrella Companies by freelancers rather than Limited Companies. It makes it a lot easier for them to deal with a few hundred Umbrella Companies rather than over a million freelancers.

More Tax

The Umbrella Company freelancers pay around £10,000 a year more in tax as they can claim less. Also, the Umbrella Companies subtract PAYE from their contractors and send it weekly to the Government. It makes the tax less effort to collect and process. The Umbrella Companies are doing it for them.

This new proposal from the BBC to not use Limited Company freelancers in the future may be just the thin end of the wedge as far as UK freelancers are concerned.

IT Contractor Rates – How much will I earn?

IT Contractor Rates

IT Contractor rates – how much will I earn?

The first thing that people who work in IT who want to become an IT Contractor want to know is how much they will earn if they start contracting. It used to be always said that anyone starting as an IT Contractor would get around twice as much contracting as they got in their permanent job. Of course, this varies depending on the stage of the economic cycle.

If it’s a boom IT Contractors rates soar. If it is a downturn, IT Contractor rates can go down quite a bit. Permanent salaries can’t be put down.

Advertised Rates

Three years ago, IT Contractor rates for a developer averaged £450 a day. Now they average £375 a day according to ITJobsWatch, which is a big drop.

Usually when a contractor’s annual income is calculated the weekly rate is multiplied by 48 weeks. That means that a contractor earning £400 a day would be seen as earning £96,000 a year.

However, because of the short-term nature of contracts, usually of 3 months or 6 months duration, IT Contractors normally spend some time ‘on the bench’ during the year.


Some contractors keep getting renewed at one company and they can pile up quite a stack of money if they can do that. Often, though, a project, and therefore a contract, will only last a certain amount of time and then that’s it.

There’s been many a contractor, on his or her first contract, who was out of work after 3 months and at a disadvantage to more experienced contractors in the job queue.

It used to be that companies would take IT Contractors a few weeks after interviewing them. Now they usually want the contractor to start on the following Monday after the interview.

As contractors don’t usually know if they are going to be renewed till 2 or 3 weeks before the end of the contract (or less) a period out of work is almost inevitable. Then it usually takes a few weeks (or more in a downturn) to look for work, interview and get accepted.

What Expenses can I claim as a Limited Company Contractor?

Expenses – Limited Company Contractor

What expenses can you claim as a Limited Company contractor?

Limited Company contractors pay an average of £10,000 a year less than Umbrella Company contractors. This is mainly because of the money they can save by being able to claim expenses against tax.

1. Equipment Expenses

If you use a PC to run your business you can claim for that. You may be able to claim mobile phones and tablets as well if you use them predominantly for your business.

2. Telephone Bills Expenses

You can claim some of your telephone and mobile phones bills against tax provided that you use them for your business. It’s not smart to claim the whole bill but you should be able to claim a decent percentage of your phone bill against tax.

3. Stationery Expenses

You obviously need to buy books, folders, pens, pencils etc. to help you run your business and so they can be claimed against tax.

4. Internet Bills Expenses

All contractors will need to use the internet either for the job, for training or simply to look for jobs.They will also use it for other purposes but a decent percentage can be claimed against tax.

5. Accommodation Expenses

If you are working away from home you can claim any costs incurred, e.g. the cost of the hotel or B&B. You can also claim an evening meal against tax. Make sure that they are different prices every night though.

6. Travel Expenses

Your office is in your home. Therefore any travel to a client’s site is a cost and can be claimed against tax. remember to keep receipts for bus or train travel. If you go by car you can claim mileage of 45p per mile up to 10,000 miles in any tax year and 25p per mile after that. You can also claim for any parking costs that occur. If you travel by bicycle or motorcycle you can claim 20p a mile for the former and 24p a mile for the latter.

7. Training Expenses

Any training that you do that is relevant to your work is claimable.

8. Pensions Expenses

Every contractor should have a pension. It gives contractors one of their biggest tax breaks. With a Pension you can get the taxman to contribute almost as much as you do. Your National insurance contributions are less too.

This is not a complete list of what can be claimed by the Limited Company contractor but it gives a good view on how the Limited Company contractor is able to keep around £10,000 more a year of his or her hard-earned pay than an Umbrella Company contractor would.

IR35 Compliance – Keeping Your Contract outside IR35

IR35 Compliance

The secret to IR35 Compliance is to have as many different working practices from the permanent staff at your client as you can. Not only should your contract show that you are working in a much different way to employees of your client but that your working practices are very different too.

If your working practices are similar to those of permanent employees then it doesn’t matter what your contract says.

However, having a contract that is ‘IR35 free’ is the first step to IR35 Compliance.

Right of Substitution

For IR35 Compliance, make sure that you have a Substitution Clause in your contract. It may be the case that if you ever tried to impose a substitute on a client they may well refuse. However, you seldom, if ever, would need to. HMRC were left frothing at the mouth in a recent case where the judge decided that they would have had to prove that a substitute couldn’t be used to make that clause in the contract invalid.

See Right of Substitution for further details.


For IR35 Compliance it is crucial that you control your own work and the way you do it rather than being supervised or being shown how to do it by someone at the client’s company. It is important that it states in the contract that you will be deciding how you do the work. It is also important that this is carried out in practice otherwise this clause in your contract will be voided by any judge.

See Control as an IR35 Factor for further information.

Mutuality of Obligation

This is where there is an obligation for the client to give you work, for you to do it and for them to pay you for it. This is how a permanent employee operates. For IR35 Compliance you must differentiate yourself from them as much as possible.

There must be no clauses in the contract that show any Mutuality of obligation. Indeed you can go further and state in the contract that there is no Mutuality of Obligation.

For a more detailed analysis see Mutuality of Obligation

Non-Standard Contract

For IR35 Compliance make sure that you don’t have a standard contract that you use for every contract. Tailor it for each contract.

Other Contract Issues

Other issues that must be addressed in your contract for the sake of IR35 Compliance are:-

1. Basis of Payment

2. Part and Parcel of the Organisation

3. Provision of Equipment

4. Employee Benefits

5. Opportunity to Benefit from Sound Management

6. Financial Risk

7. Intention of the Parties

8. Length of Engagement

9. Right of Dismissal

How the Budget will affect Limited Company Contractors


Limited Company Contractors will be scanning the 2013 Budget to see how it affects them. The main thing that they will be looking for is any changes to IR35 legislation.

Chancellor Osborne has promised that he will STRENGTHEN IR35. Since the Coalition have come in they have dashed hopes from the Professional Contractors Group (IPSE) and from contractors that they would abolish IR35.

They did review IR35 but decided that they would keep it or there was the risk that many contractors would dump their Umbrella Companies and go back to using Limited Companies.

The Government didn’t see that as a good thing as there are over 200,000 contractors using Umbrella Companies paying on average £10,000 a year more in Income Tax and NICs than Limited Company contractors.


However, Chancellor Osborne went further in his Budget last year and promised to strengthen IR35. He has already:-

1. Allowed HMRC to recruited a team of 30 IR35 Compliance Officers based in Salford, Croydon and Edinburgh at a time when HMRC has had to cut back staff by 10,000

2. Introduced, with HMRC, an online IR35 Business Entity Test, created for them by the PCG, and are sending letters out to contractors asking them to sit the test and show proof that they are outside of IR35

3. Brought in rules in Government departments where contractors who earn more than £220 a day and who have been there for 6 months, have to prove that they are paying the right amount of tax, i.e. IR35 and if they aren’t they have to become a permanent member of staff or be terminated

4. Have changed the rules so that ‘office holders’ at an organisation must be permanent members of staff and not contractors

However, this is not likely to satisfy them and there is a danger of there being a further attack on Limited Company contractors in the budget.

After all the Government does prefer contractors to be in umbrella companies rather than Limited Companies and it has the power to force more and more contractors to go down the Umbrella Company route – which is far more lucrative for the taxman and the Treasury.

Right of Substitution as an IR35 Factor

Right of Substitution IR35 Clause

Right of Substitution

To me, the Right of Substitution is one of the craziest of factors which determine if a contractor is caught by IR35. That is, if he or she has a contract of service rather than a contract for services. However, it is one of the three big factors that determine if a contractor is inside or outside of IR35.

The more unique that a contractor’s skills are the more only he or she can do them tasks properly. Surely that differentiates them from an employee whom even their employers see as replaceable.

Normally the more you differentiate yourself from a company’s employees the more you are outside IR35. That’s except in the case of the Right of Substitution.

Disguised Employees

If you are working at a client’s site and your skills and knowledge make you the most irreplaceable (from your skills knowledge rather than from a business knowledge of the client) why would that make you a ‘disguised employee’ when normally their employees are replaceable?

However, that’s the game and contractors have to play it. It’s just another bureaucratic hoop that contractors have to jump through nowadays.

So, contractors have to play this game and put the Right of Substitution in their contracts and better still, name names of who will substitute for them. Of course, this is normally a bit of a farce.

They put it in there and name the names hoping that it never comes up. Usually clients would never allow a sub anyway.

Client Allowing Substitute

It’s usually difficult to pick up someone else’s work and run with it. It’s better to wait for them to come back

It is completely unlikely that the client would allow a substitute. The reason is that, although he, or she, may have the same skills as the person who asks him or her, they do not have the business or systems knowledge that the contractor has picked up while on that client’s site which is unique to that client.

Naming the Substitute

So what can you do?

1. Have the right of substitution in your contract.

2. Name the substitute(s) if you can.

3. If you have an unfettered right to place yourself with a sub even better.

4. Put a clause in the contract saying that you will reimburse the client if the work done by the replacement is inferior to the work done by yourself – either that or you’ll make good any inferior work or schedule slippage.

HMRC & the Substitute Clause

HMRC may argue that the right of substitution in your contract is a sham. However, they have not succeeded well with that argument in the courts as they have not been able to prove that you wouldn’t have been able to use one as it hadn’t come up. This must be very frustrating for them but it is a crazy game anyway.

Having the clause in your contract has been often been shown to be enough. They could only prove it was a sham if ever there was a need for a replacement for you the client agreed there was a need and you didn’t supply one. The burden of proof is with them.

IR35 Clauses

As this is a scenario that hardly every happens just make sure you play this game and get the right clauses in your contract. Leave it to HMRC to prove it is a sham without any evidence to the contrary. Although I said it was crazy it appears to be crazy in contractors’ favour. HMRC must regret trying to use it as one of the Big 3 Factors.

IR35 will not be determined solely by the Right of Substitution in your contract but it is one of the big three factors. Get it right in your contract and chalk one of the big three up to you.