What is IR35?
Introduced in 2000, the legislation IR35 aims to eliminate the avoidance of tax and National Insurance Contributions (NICs) through the use of intermediaries, such as Personal Service Companies or partnerships, in circumstances where an individual worker would otherwise:
- For tax purposes, be regarded as an employee of the client; and
- For NICs purposes, be regarded as employed in employed earner's employment by the client
In short, if the relationship between contractor and client would have been seen as one of employment were it not for an intermediary, the legislation ensures that the contractor pays tax and NICs on a basis which is fair in relation to what a permanent employee of the client would pay.
If the contractor can prove they are self-employed according to HMRC's definition of 'self employment' then they will not be affected by IR35. This is the ideal option for contractors and will typically require an 'IR35 friendly contract' in which terms reflect an engagement that would not be deemed as employment under established law. It is often a difficult distinction to make so if unsure, contractors should seek the advice of a specialist.
It is clearly in all contractors' best interests to be viewed as self-employed, or at least for a proportion of your income to fall outside IR35 legislation. If you are able to diversify and change your working practices to satisfy the criteria for self-employment, your position will be strengthened.
A contractor caught by IR35 will typically receive 20% less pay each month than one that falls outside IR35 so it is definitely a wise move to seek further advice about IR35.
Find out more about IR35 by contacting our team.
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