Freelancers’ Questions: Will my company hiring me as a sole trader nullify IR35?

Freelancer’s Question: I am the sole director of my own limited company and I am currently employed by them as a freelance consultant operating outside IR35. Is there any advantage in working directly from my company as self-employed sole trader instead of employed? Is it allowed and what, if any, are the benefits?

Expert’s Answer: There would be little benefit with your idea, and HMRC may well view it as a process by which to attempt to avoid IR35. Actually being an employee of your limited company is not a trigger with regard to IR35.

Indeed, your question suggests that it is the freelancer's employment with their own limited company (also known as a 'PSC') that will contribute toward prompting an IR35 enquiry; this is simply not the case. Exactly how HMRC decides which PSC contractors / freelancers to investigate is a well-guarded secret and the tools used to identify their ‘victims’ is still unclear.

Removing your employment contract with your own limited company or engaging yourself as a sole trader is ineffective and could come with heavier consequences should HMRC be able to prove you are purposefully avoiding tax. It is important to remember that IR35 applies to the company, not the individual; IR35 rules apply if:

  1. A worker (or their family), controls more than 5% of the ordinary share capital of the company; OR
  2. A worker (or their family) are entitled to receive more than 5% of any dividends from the company: OR
  3. A worker receives, or could receive, payments or benefits from their company which are not salary but could reasonably be taken to represent payment for services they provide to clients.

*Please note, that ‘family’ in category 1 and 2, includes an unmarried partner.

The expert was Kate Hardy, employment status manager at IR35 specialists Qdos Contractor.

 

28th November 2018

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