Effective 1st April 2009 - HM Revenue & Customs imposes financial penalties on individuals who do not take reasonable care in assessing their contracts and working arrangements for the purposes of IR35.
Freelance Contractors - Do not bury your head in the sand!
Use e-solo - Get it Right!
Example: George takes a contract to provide social work services for a local authority. His rate of pay is £25 per hour and he is expected to work a standard 36 hours per week. Friends correctly advise him that setting up his own limited company is the most tax efficient way of maximising his earnings. George sets up his own limited company and pays himself a small salary based upon the national minimum wage so as to minimise his income tax and national insurance contributions (NIC’s). He puts through all the expenses he can think of to reduce his company’s profits and therefore minimise the corporation tax. He takes the remaining profit as a dividend.
It is a fact that all Social Workers are “caught” by the IR35 legislation and should therefore pay PAYE and NIC’s on much the same basis as a full-time employee. George has not bothered to ascertain whether certain tax legislation, such as IR35, applies to him or not. Ignorance of the law is no defence and HMRC could take the view that George has not taken reasonable care in establishing his tax status in relation to this contract for his services.
His lack of care leads to an underpayment of tax and NIC of £6,000 in the course of the year. Under the new legislation for tax returns submitted after 1st April 2009, HMRC is entitled to recover the underpayment of £6,000, impose a penalty of up to 100% of the underpayment, and charge interest. This could leave George looking for approximately £12,500, including the interest to repay HMRC.
If only George had utilised e-solo software, things would have been so different.
He would have received a review of his contract terms and working arrangements from Qdos Consulting the UK’s leading business compliance specialists. George would have been advised that his assignment is clearly caught by IR35 legislation and e-solo would have calculated his taxes accordingly. e-solo would have issued George with a “Certificate of Conformity” which he could send to his agency and the local authority demonstrating compliance.
Solo provides a series of factsheets to assist e-solo users to determine what type of expenses can be legitimately claimed. e-solo ensures that all Georges records are accurately recorded and maintained. The software is quick and simple to use. George would have received unlimited telephone help and support. Assistance to correctly register for PAYE, VAT and approval to operate the VAT flat rate scheme could have legitimately enhanced George’s earnings by over £3,000 in the course of the year.
The price of e-solo includes a legal expense insurance that will pay up to £75,000 towards accounting and legal fees in the event of an HMRC enquiry or dispute. This valuable cover protects George, his agency and the local authority from unbudgeted costs arising from an enquiry or dispute such as an IR35 matter. In the event of such an enquiry George would receive professional representation from Qdos Consulting who reviewed his contract. By utilising e-solo software George demonstrates that he is taking reasonable care, maximises his earnings in a tax compliant way and removes the risk of penalties.
Use e-solo “Get it Right”
For assistance ring our compliance team on 0845 100 5010 or e-mail at info@soloaccounting.com
Simon Fullagar
CEO - Solo Accounting ltd.