A guide to IR35

IR35 is legislation to stop contractors working as disguised permanent employees

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What is IR35?

IR35 is a tax legislation designed to prevent contractors and freelancers from providing services via an intermediary, such as a limited company, but who would normally be classed as an employee if that intermediary did not exist. These types of workers are also known as disguised employee's by HMRC. If caught by IR35, you will end up paying income tax and National Insurance contributions as if you were an employee.

As a contractor, you will need to ensure you are compliant with the rules. This is made more difficult as HMRC do not make it easy to distinguish between contractors and employees and there are a variety of questions you need to answer to get an desicion.

A common example...

An example used to explain what IR35 tries to prevent is when a person is working as an employee for a company, finishes that employment on a friday but then returns in the same role, engaged as a contractor, on Monday and paying much less tax then before.

Control, substitution and mutuality of obligation

IR35, on a basic level, applies three principles to determine a worker's employment status. These principles are known as the 'tests of employment'.

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Control

What control does the worker have over the client to determine how, what and where the work is completed?

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Substitution

Does the client specifically need a personal service from the worker or could a substitute be sent in their place?

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Mutuality of obligation

Is the client obliged to offer work to the worker regardless and is the worker obliged to accept that offer of work?

There are other factors that are taken into account to determine whether IR35 status applies to the worker; including whether you are taking a financial risk, using your own equipment or whether you have insurance through the company.

All this evidence contributes to the decision whether the worker is deemed an employee and hence caught by IR35.

What if IR35 applies?

If IR35 does apply to the contract, the worker will need to pay the extra income tax and NICs through legislation aready in place.

In simple terms, the worker will need to calculate a 'deemed payment' on the limited company income. This deemed payment is calculated after deducting the workers salary and a 5% expenses allowance with the remaining amount left treated as a salary payment.

IR35 specialist service includes

  • IR35 contract review and risk assessment
  • Advice on monthly salary payments
  • Director's monthly PAYE returns and P60's
  • Free HMRC investigation insurance
  • Unlimited advice and support - speak directly with your accountant
  • Calculation of deemed payment
  • Payroll and dividend calculations
  • Professional business insurance

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Expert IR35 accounting from only £75 / month

We provide a high-quality, specialist and personal service to UK contractors and freelancers. Our expert accountants are experienced in the dealings of IR35 and can advise you accordingly on your contract. A complete, specialist accounting and tax solution, with simple, modern communication tools and an all-inclusive fixed fee.

Relax knowing everything is taken care of, youre fully informed and you can concentrate on bringing in business and delivering for your clients.

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