IR35 legislation came into effect in April 2000 to identify the true employment status of a contractor. This step was taken by HRMC to crack down on so-called tax abuse as reports of individuals working as disguised permanent employees to avoid paying PAYE taxes increased.
This legislation challenges those individuals who supply their services to clients through an intermediary (which can be a personal service company, limited company or partnership) to assess whether, had the intermediary not been present, they would have been “employees” of the client.
If you own a limited company or are thinking of starting one, you should be aware of IR35 legislation. We agree its details are intricate and confusing and can cause you a lot of undue worry. This is the reason why we insist you read this section properly to understand whether or not your contract falls “inside” or “outside” IR35. Every contract you work under should be assessed against the IR35 legislation.
There are 10 key factors to evaluate before determining whether you are operating outside or inside IR35 and assessing your IR35 status is important:
|1. Personal service / Right of substitution||6. Basis of payment|
|2. Right of control||7. Exclusive service|
|3. Mutuality of obligation||8. Part of organization|
|4. Provision of equipment||9. Intention of the party|
|5. Financial risk||10. Business like trading|
After assessment, if the contractor appears to be controlled or managed in any way, it means they fall inside the IR35 legislation and have to pay income tax and National Insurance Contributions (NICs) on the company’s total income.
The government is undertaking another consultation into IR35 prior to the April 2017 changes and therefore proper advice should be taken from appropriate experts.
If a contractor has the same benefits, responsibilities and control as a permanent employee they are more likely to be caught inside IR35. If you are caught under IR35, HMRC can demand income tax and National Insurance Contributions along with penalties going back several years.
When IR35 applies, the earnings for the engagement of the intermediary will need to be in the form of “Deemed Payment”, also called the “Deemed Employment Payment” as they are ‘deemed’ to be the income of the worker.more about inside IR35
To prove that you are working outside IR35, you need to prove that you work independently and not under the control of anyone. If your contract is outside IR35, there is no restriction on how you get paid and you can choose to withdraw funds from your company by a salary or dividends.
Also, if you are not caught by IR35, you can claim Travel and Subsistence expenses.
Please note that in checking the IR35 status, both the contract and working practices must be reviewed which is why it is necessary for you to seek expert advice. At Bradleys Contractors, we offer a fully compliant IR35 review service to all of our Limited Company clients.more about outside IR35