A Detailed Explanation Of IR35
On 9th March 1999, HMRC issued a bulletin named IR35, detailing how they were going to close the loophole that allowed contractors to stay away from paying tax and NICs by using intermediaries, for example personal service businesses, composite companies or enterprise partnerships. Essentially, IR35 affects all contractors who do not meet the Inland Revenue's definition of 'self employment'.IR35 denotes the UK tax legislation created to tax 'disguised employment' at a rate comparable to normal full-time employment. The intention of IR35 (and subsequently IR56) is to ensure that if the relationship between a contractor and their Client would have been one of employment, had it not been for the introduction of an intermediary, the contractor pays tax and NICs on the very same basis as that of an employee of the Client.
However, IR35 is a complex issue and the vast majority of contracts are not exclusively or easily interpreted inside or outside IR35. Many contractors who thought they were not affected by IR35 have been forced to pay back taxes or have been taken to court and lost. Although the actual legislation is to some extent open to interpretation, case law has established a precedent on which a contractor's IR35 status can be assessed.
Contractors outside IR35 would, inside the past, form their own limited business and pay themselves via the dividend method. If your contract is inside IR35 and therefore subject to deemed employment, you can operate your payments through Client PAYE even though this is not the most efficient method. Whatever your status, there are alternatives and you may still be able to increase your net income. The introduction of IR35 led to the creation of a service industry dedicated to supporting the lucrative contractor sector and offering (not always legally) a variety of payment solution options.
I work in an office along side other contractors and employee's and we all undertake the identical tasks. We have the identical supervisor and take the identical directions. Would I be within IR35? Usually if you are undertaking the identical tasks as an employee HMRC would usually state you are a disguised employee and therefore within IR35. Having the exact same directions from the same supervisor confirms this. I have to attend the Client's site to undertake the work but I can arrive when I like providing I make good progress within the scope of the project and have no direct supervisor. Would I be within IR35?
For contracts to fall outside IR35 you would be looking for the right of control. You would also expect to put things right in your own time and at your own expense. The safer the contract, generally the more like typical employment the contract becomes. I am looking for contracts via an agency. Would this alone place me within IR35? Some agencies specify that the end Clients insist on contractors paying PAYE on their income and therefore, word employment contracts in such a way that the contractor would fall within IR35, by agreeing to these terms within the contract you would be changing the working practice. However some agencies are happy for you to personally negotiate terms within the contract and providing the nature of the contract work is that of self-employment then IR35 would not apply.
However, IR35 is a complex issue and the vast majority of contracts are not exclusively or easily interpreted inside or outside IR35. Many contractors who thought they were not affected by IR35 have been forced to pay back taxes or have been taken to court and lost. Although the actual legislation is to some extent open to interpretation, case law has established a precedent on which a contractor's IR35 status can be assessed.
Contractors outside IR35 would, inside the past, form their own limited business and pay themselves via the dividend method. If your contract is inside IR35 and therefore subject to deemed employment, you can operate your payments through Client PAYE even though this is not the most efficient method. Whatever your status, there are alternatives and you may still be able to increase your net income. The introduction of IR35 led to the creation of a service industry dedicated to supporting the lucrative contractor sector and offering (not always legally) a variety of payment solution options.
I work in an office along side other contractors and employee's and we all undertake the identical tasks. We have the identical supervisor and take the identical directions. Would I be within IR35? Usually if you are undertaking the identical tasks as an employee HMRC would usually state you are a disguised employee and therefore within IR35. Having the exact same directions from the same supervisor confirms this. I have to attend the Client's site to undertake the work but I can arrive when I like providing I make good progress within the scope of the project and have no direct supervisor. Would I be within IR35?
For contracts to fall outside IR35 you would be looking for the right of control. You would also expect to put things right in your own time and at your own expense. The safer the contract, generally the more like typical employment the contract becomes. I am looking for contracts via an agency. Would this alone place me within IR35? Some agencies specify that the end Clients insist on contractors paying PAYE on their income and therefore, word employment contracts in such a way that the contractor would fall within IR35, by agreeing to these terms within the contract you would be changing the working practice. However some agencies are happy for you to personally negotiate terms within the contract and providing the nature of the contract work is that of self-employment then IR35 would not apply.