What Is IR35?

There is a lot of information about IR35 and urban myths of which many aren’t true. IR35 came into effect in April 2000 and was designed to stop contractors working as disguised permanent employees i.e. benefiting from the tax advantages of being a contactor without accepting the increased responsibilities of company ownership. This means working with the same level of responsibility, control and liability expected of directors of other limited companies. For example an IT worker may resign from their permanent role on a Friday, but return on Monday doing the same job, at the same company, same desk with the same manager. The only difference is they are now doing the job as an IT Contractor working through their own limited company.

Due to the increased work, risks and responsibility there are certain tax advantages, for example dividend payments (profits taken from your company) though a limited company do not attract National Insurance contributions, which is fair enough as you wouldn’t be able to benefit from all the standard employee benefits such as holiday pay, sick pay, pension etc.

What is inside and outside IR35?

Essentially if you have the same benefits, responsibilities and control as a permanent employee, then you would more than likely be classed as inside IR35 (caught by IR35). Some of the key factors that determine if you’re inside or outside IR35 are control, financial risk, substitution, provision of equipment (sometimes, especially in secure sites you may have to use a client side equipment), right of dismissal and employee benefits.
Many of the above will be detailed in your contract. However, it is best to remember that although HM Revenue and Customs will more than likely want to see your contract, your working practices must reflect what is in your contract.

IR35 can be a complex issue, but it can be managed.

The underlying message emerging from the HMRC is that there is considerable IR35 under-compliance. HMRC want to tackle the issue with legislative changes and also alterations in approach. It is now more important than ever to understand whether your arrangement is IR35 compliant – there is a lot of money at stake! We can perform comprehensive IR35 Contract Review and look at both your contractual terms and working practices to offer you a clear opinion on your IR35 status.

So, don’t wait until HMRC start taking an interest. Simply call us on 0117 304 8455 to discuss your requirements.