IR35 Tax & VAT
 for clinical pharma contractors
IR35
Background
In April 2000 the Government introduced the composite
legislation known as 'IR35' (first discussed in the budget of
April 1999) with the aim of eliminating what it regarded to be
tax and national insurance contributions avoidance by individuals
operating as companies. The term IR35 comes from the name of the
Inland Revenue press release number 35, which first proposed the
legislation. The intended effect of IR35 was to prevent individuals,
who would otherwise be classed as employees, from obtaining financial
advantages by setting up small professional service companies
and hiring out their services.
How are contractors
affected?
The Inland Revenue has decided that there are
two types of contractor:
1. A genuine contractor
2. 'Akin to employed'
Contractors can now have their contracts tested
by Revenue to determine their IR35 status. They may also be subject
to periodical investigations by Revenue where their contracts
are likely to be looked at.
If you pass IR35 (i.e. you're viewed as a genuine
contractor), you have a high degree of flexibility as to the level
of salary you pay yourself. You can, for example set yourself
a relatively low salary and have a company issue you dividends.
This method of distribution will usually be more tax efficient
than a high salary. Dividends are not subject to the Employer's
National Insurance of 12.8%.
However, as a contractor in the pharmaceutical
industry it is very likely that you will be deemed to be more
like an employee than a contractor i.e. you are 'akin to employed'
and have failed IR35, you have to take a higher salary as defined
by a pre-determined formula. This has traditionally results in
a reduction of approximately 8-15 % on your net income (the average
is currently 11%), depending on each contractor's individual circumstances.
Working examples
A clinical data manager who works 9-5 on a client
site, has little or no direct responsibility and does not provide
tools of his/her own to complete daily tasks and as such would
most likely be deemed as 'employed' and therefore subjected to
the IR35 rules.
However, if you are a SAS programmer who
is able to work from home, performs tasks for multiple clients
and uses his own equipment to complete the work would more likely
be deemed 'self employed' under the rules.
The Revenue would look at the overall picture
to determine a person's employment status, so the more pointers
there are to genuine 'self employment' the better.
Contact us:
If you are a pharmaceutical consultant and have been deemed to
be a 'genuine contractor' then why not tell us your story!
IR35
Resources
The above information is by way of an outline.
Reference should be made to:
Inland Revenue - Provides a full listing of press releases
and publications on, or relating to, IR35. The site also includes
an extensive selection of general frequently answered questions
on IR35, as well as sections focusing particularly on computation,
expenses and legislation. www.inlandrevenue.gov.uk/ir35/index.htm
IR35 Deemed Payment Calculation Spreadsheet The IR site
also includes an IR35 calculator in excel format. www.inlandrevenue.gov.uk/ir35/ir35.xlt
(Also available in our downloads
section if the IR site is down).
Professional Contractors Group - The PCG was formed in
May 1999 to provide independent contractors and consultants
with a representative voice in opposition to the original IR35
proposals. Since then the Group has developed rapidly from a
one issue campaign to a full professional body, representing
contractors interests and providing a voice at the top table
for all relevant issues, such as the E-Commerce bill, Agency
regulations and others. www.pcg.org.uk
We suggest you speak to a qualified
professional to see how you may be affected.
V.A.T.
Three letters that often cause a lot of fear
for contractors. They should not.
If your limited company expects to turn over more than £58,000
per annum, you should register for V.A.T. In essence, you become
a tax collector for the VAT man i.e. you collect V.A.T on behalf
of Customs & Excise on all sales invoices you issue e.g to
your agent.
Each quarter, the C&E will send you a green
V.A.T return for completion. All V.A.T collected on your sales
invoices and V.A.T paid on legitimate company expenses (such as
computer equipment) is declared on the form. Then a check for
V.A.T. collected minus V.A.T. paid is sent to the C&E.
Since V.A.T returns are submitted quarterly,
you gain interest on the V.A.T. you collect before having to pass
it on the C&E.
V.A.T is currently 17.5%.
There are different ways to account for V.A.T.
e.g. cash accounting, and again your accountant
can advise on the one that suits you best.
Contractor Testimonials
"Although I know how to deal with money, invoices
etc I had no idea about IR35. Thanks for your basic yet informative
section on IR35!"
|
