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PCG offers help with IR35-proof contracts

Professional Contractors Group has amended its advice for contractors following the recent court ruling over the legality of the IR35 tax rules
Written by Graeme Wearden, Contributor

The Professional Contractors Group (PCG) has created a series of draft contracts that it believes self-employed workers could use to avoid falling foul of IR35.

The draft agreements, which were published on Monday, cover situations where a contractor works directly with a client, and also scenarios where a company has outsourced a project to an agency, which then employs a contactor to carry the work out.

The PCG has updated the draft contracts following its recent unsuccessful judicial review of the IR35 tax rules in March. The judge who heard the case was critical of the way that the Inland Revenue has been implementing IR35, and the PCG says it has taken his comments into account when reworking its advice.

IR35 allows the Inland Revenue to treat the turnover of an IT contractor or a small business as salary, if it believes that the person is effectively an employee of the firm paying them. The PCG believes that the rules -- which came into force in April 2000 -- are unfair, and will drive many IT workers abroad.

According to tax experts, the PCG's draft contacts should, if used correctly, guarantee that a contractor escapes IR35, saving money in tax and national insurance contributions.

Anne Redston, partner at Ernst & Young, told Shout99 that the contracts reflect the current case law which determines whether someone is inside or outside IR35.

"Where the 'direct' contract, between the client and the supplier, is put in place and it accurately reflects the relationship between the client and the worker, then, based on current case law, the contractor will not be caught by IR35," she advised.

Redston added that the "'back-to-back" contracts -- for situations involving a client, a third-party agent and the supplier -- would also protect the contractor from IR35 as long as the contract accurately reflected the relationship between the client and the worker, based on current case law.

The draft contracts are only available to PCG members. It costs a contractor £100+VAT to join the PCG for one year. Clients, agents, accountants, lawyers and other interested parties can join for £250+VAT per year.

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