**IMPORTANT**

UNDER THE NEW MANAGED SERVICE COMPANY (MSC) LEGISLATION, FROM APRIL 2007 IR35 NO LONGER APPLIES TO NOVA ADMINISTERED LIMITED COMPANIES.

HOWEVER, IR35 COULD STILL APPLY TO ANY WORK DONE PRIOR TO THIS DATE. THEREFORE YOU WOULD STILL BE ADVISED TO READ THE GUIDELINES BELOW.

WHAT IS IR35?

IR35 is tax legislation introduced in the 2000/2001 tax year. Its purpose is to ensure that those individuals who work through a limited company and who therefore treat a portion of their income as salary and a portion as dividends, are entitled to do so. This largely hinges on the basic question "are you self-employed or employed?"

Unfortunately, there are no hard and fast rules on this and it is initially the Tax Inspector and ultimately the courts, to consider each case that comes before them. As the legislation is still new, there are relatively few court rulings to help us, so the best you can do is to take reasonable precautions to consider whether the legislation could affect you.

If the Inland Revenue decides that you should be regarded as "employed", then you would potentially be liable for the tax that should have been paid, had all your income been treated as subject to PAYE and NIC. This is largely the PAYE and NIC that you have saved by working through your Nova administered Company, subject to certain allowances.

You could also be charged interest on the amount you have been found to have underpaid - and possibly penalties as well, if the Inspector feels you are at fault.

HOW DO I DECIDE IF I'M SELF-EMPLOYED FOR THE PURPOSES OF IR35?

Unfortunately, this is far from simple as there are so many possible interpretations that can be put on how you work, as each assignment can differ. However, there are some pointers that help.

Please consider the following sections carefully.

SECTION 1

If you answer YES to ANY of the following questions, you are most likely NOT operating as a self-employed person for the purposes of IR35 and would not qualify for Nova to administer a company for you.

The "client" means the business you are providing your services to.

a) Does your contract state that you are an employee of the client?
b) Is it intended that you should become an employee of the client?
c) Are you likely to be providing your services to the same business and in the same location for over 6 months?
d) Does the business usually request you personally to provide the services?
e) Are you a member of the clients pension scheme?
f) Does the client pay you sick pay if you are off work?
g) Does the client pay you holiday pay?
h) Are your terms and conditions the same as the permanent employees of the client?
i) Does the client give you a company car or van?
j) Have you the authority to hire and fire the client's staff?
k) Does the client have an obligation to offer you regular work?
l) Do you have to accept work from the client if you're offered it?
m) Are you eligible for redundancy notice or redundancy payments from the client?
n) Do you use the client's letter headings and business cards, and claim expenses on the clients claim form?

SECTION 2

It will help your case for self-employment for IR35 purposes if you can answer YES to the following questions.

a) Could you (or your agency) find a substitute to undertake your work if you cannot undertake the work yourself?
b) Having been allocated your assignment, are you given reasonable freedom as to how to complete it?
c) Do you take any financial risk and use your own equipment on each assignment?
d) Is your contract for as long as your services are needed, rather than for a fixed term?
e) Do you regard yourself as being independent from the client and do permanent employees of the client regard you as independent from the client?

FOR MORE INFORMATION, PLEASE READ THE INLAND REVENUE IR56 BOOKLET. A copy is available from our customer services.

Most of our members are on short-term assignments, with no income security. We feel that it is fair and reasonable that you should be properly compensated for the added risk that your method of working entails.

WHAT HAPPENS IF I CONSIDER THAT IR35 DOES NOT AFFECT ME -- AND THE TAX INSPECTOR DISAGREES?

If the Inspector challenges your interpretation of how you work and how your tax should be assessed, you have two options. You can either accept his ruling and pay the tax that the Inspector considers that you owe, and any interest and penalties that may be imposed, or you can challenge his opinion by taking the case to court. But don't let that frighten you at this stage! Nova is here to help and assist you, if in the unlikely event your tax return is challenged.

WHAT IS THE TAX THAT THE INSPECTOR COULD WANT ME TO PAY?

If the Inspector believes that your employment comes within the scope of the IR35 legislation, he will want to assess your income as though you had been an employee and therefore subject to PAYE and NIC (both employee's and employer's) on your entire income. As you both wish to be, and consider yourself to be, "self-employed" you wish to become a member of a Nova administered company to save tax, by dividing your income into salary and dividends, this could involve your having to effectively repay the tax you had believed you had saved. You could also be liable for interest and penalties on the underpaid tax as well. However, to do this the Inspector would have to show that the conditions of "employment" were true for each and every assignment.

NOVA CORPORATE SERVICES LTD. HAS DONE EVERYTHING POSSIBLE TO ENSURE THAT ITS CONTRACTS FOR SERVICES HAVE BEEN DRAFTED TO FULLY EXPRESS THE RELATIONSHIP THAT EXISTS BETWEEN YOU, AS A SELF-EMPLOYED CONTRACTOR, YOUR NOVA EMPLOYER COMPANY AND THE AGENCIES AND THEIR CLIENTS. HOWEVER, THERE IS NO GUARANTEE THAT WORKING THROUGH YOUR NOVA ADMINISTERED COMPANY WILL AUTOMATICALLY ENSURE THAT YOUR TAX RETURNS ARE ACCEPTED WITHOUT QUESTION. IF CHALLENGED, WE WILL DO OUR BEST TO SUPPORT YOU, BUT IN APPOINTING NOVA, YOU DO SO IN THE KNOWLEDGE THAT IR35 COULD AFFECT YOU, IF THE REVENUE CAN PROVE THAT YOU SHOULD BE TREATED AS BEING "EMPLOYED". THIS WOULD MOST LIKELY RESULT IN YOUR HAVING TO REPAY TAX.

OUR CUSTOMER SERVICES HELPLINE WILL DO ALL THEY CAN TO FURTHER EXPLAIN HOW IR35 WORKS AND HOW YOU COULD BE AFFECTED.

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