February 12, 2021

IR35 Compliance: Best Software Development to Avoid Penalties

IR35 compliant software development
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Short and long term resource available to address the impact of IR35 on your software development.

What is IR35

IR35 stands for the Intermediary and Taxed as Employment rules that operate in the UK tax system.

It is an attempt to ensure that contractors and freelancers who work for a variety of clients are taxed as if they were employees.

The IR35 was initially introduced to stop individuals from taking out large mortgages on their homes, and then contracting out their work to companies and thus not paying tax on the income.

The rules of IR35 are complex, but the general principle is that if an individual is providing their services by way of a contract, and the company client is benefiting from those services, no matter the employment status, the individual is likely to be taxed as if they were an employee.

Whether you are in the public or private sector, if you use contractors as part of your long term development strategy or to solve short term problems, IR35 is going to impact your business. With the new employment rules for contracts coming into effect in April 2021, the IR35 tax reforms have the potential to be highly disruptive.

Being inside IR35 means that your contract falls within the off-payroll working rules and HMRC views you as an employee for tax purposes.

If you are recruiting or employ any self employed contractors, they will by default fall within the new regulations and not following the right regulations may become a financial risk for your organisation. Dealing with the repercussions of a potential exodus resulting from the legislation could take months to recover from. At Synetec we are the ideal partner to support you overcome any challenges IR35 might present.

Our workforce pay their income tax and make their national insurance contributions in the UK, and comprises of permanent and associate employees, all meaning you are unaffected by the new rules. We will always strive to provide a World Class service for our clients, a service you can depend on

Utilising our range of development services, such as SDaaS, we can mobilise a team quickly to deal with any short term pain IR35 might present as well as be the longer term solution to your software development challenges. Contact us today to find out more.

How can penalties be avoided with this regulation?

The penalties for non-compliance can be significant and if you have a project team that includes contractors, then you need to be aware of the potential impact.

These can include:

- Unpaid tax/tax avoidance: Companies and individuals could be required to pay tax on the income that they should have received if IR35 had not applied.

- Interest: Interest will be applied if the tax and interest are not paid in a timely fashion.

- Penalty: If the company or individual is non-compliant, they will be taxed as if they were employees, which could result in a penalty of up to 100% of the amount that should have been paid. This penalty is in addition to any unpaid tax, interest and also any unpaid National Minimum Wage.

- Reducing the scope of work: Companies may have to reduce the scope of work that they contract out as contractors may not be prepared to take the risk of being taxed as employees.

- Closing down the business: If a company is non-compliant, they may decide to close down their business rather than risk a penalty. Being a limited company does not save you from these penalties

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