What is IR35?
IR35 was introduced to prevent employees avoiding the taxes and National Insurance Contributions associated with employment by being paid through their own Limited Company.
The rules can apply to sole traders and to those operating through their own limited company.
IR35 refers to the provisions of «Intermediaries legislation» introduced in 2000. Details of the legislation were first announced in the 1999 Budget press release numbered IR35. The legislation is now commonly referred to as ‘IR35’.
The aim of the Intermediaries legislation was to eliminate the avoidance of tax and National Insurance Contributions (NICs) through the use of intermediaries, such as 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."
When you undertake a contract, you need to check the provisions of the IR35 legislation will not apply. Broadly speaking, if the contract is such that, if you were to do the work directly for the client you would be seen as an employee, it may fall under the IR35 provisions.
If you are working through a limited company or partnership, you may be caught by the IR35 rules. Your accountant should be able to advise you on this.
A detailed explanation of how the rules may apply to you if you work through a limited company is provided by HM Revenue and Customs here.
Working through an umbrella company can help to avoid being caught by the IR35 rules. The umbrella company effectively employs you and ensures that all your tax and national insurance contributions are met.
See our Legislation news to stay up to date with IR35 changes.
IR35 guidance from HM Revenue & Customs www.hmrc.gov.uk/ir35/
The Professional Contractors Group has a useful archive of IR35 information.
last updated 31.07.12
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