Originally called the Intermediaries Legislation, but better known as IR35, this law was introduced towards the start of 2000. The purpose of it is to prevent tax evasion through the use of personal service companies. This is done, not by identifying those doing so, but simply by taxing such companies (which do have a legitimate purpose) the same as individuals are taxed.

This has been an unpopular piece of legislation, especially since most UK freelancers are genuinely self employed consultants who are taking entrepreneurial risk in providing their services. A well worded contract can help them underline their self employed status. Likewise, a poorly worded contract can undermine that status at a stroke.

The simplest and safest solution is to have all contracts reviewed by an IR35 expert before signing. There are many review providers and the average price is around 120. Given that the review could result in a tax saving of tens of thousands of pounds in an IR35 enquiry, it is a false economy to put off getting a review.

Here are some of the things that IR35 experts check when they review contracts for IR35 status:

1. Will your company be financially responsible for failure? [Yes = Good]

2. Does your company profit from sound management in performing a contract? [Yes = Good]

3. Is your company permitted to send alternative personnel? [Yes = Good]

4. Is your company responsible for any bad debts? [Yes = Good]

5. Does your contract say "Contract for services" instead of "Service contract"? [Yes = Good]

6. Will you receive sick or holiday pay? [no = Good]

7. Are you in a "master and servant" relationship with your client? [No = Good]

8. Do you have mutuality of obligations with your client? [No = Good]

If you are a UK freelancer and all of the above check out in your case, then you might stand a good chance of staying outside IR35. But a word of warning about contracts: It's not just about WHAT is written, but also the WAY it is written. When reviewing contracts, IR35 experts look very closely at wording and phrasing. They know that poor wording can create a chink in your armour that the tax authorities can exploit.

So, the first step in making sure you are completely in the clear with regards to IR35 is to contact an expert reviewer. Get them to take a look at your contract, and sound out anything that might trip you up. Just be sure you get thsi done before you put pen to paper and actually sign it.