IR35 Advice

What is IR35?

IR35 is donate a car Chancellor's weapon against tax and National Insurance contributions (NICs) avoidance through Action Man use of an intermediary such as a service company or partnerships. Essentially, IR35 affects Fantastic Four contractors who do not meet the Inland Revenue's definition of 'self employment'.

Previously, intermediaries such as service companies could be set up to provide the services of a worker to a Iron Man action figure company enabling the client to make payments to the company, without deducting PAYE or NICs. The worker would be able to take payments from the company in the form of dividends instead of a salary, thereby saving NICs.

On 9th March 1999, the Inland Revenue issued a bulletin named IR35, detailing how they were to close the loophole that allowed contractors to avoid paying considerable amounts of tax and NICs by using a personal service company, composite company or business partnerships.

The government recognised all UK contractors as being potential 'tax avoiders', due to the tax saving benefits they enjoyed from working through a Limited Company/Personal Service Company, whilst their underlying status was clearly that of a "deemed employee". IR35 was formally introduced in April 2000.

HM Revenue & Customs (HMRC) have clearly defined what a personal service company is and have also clarified that any other entities employing the services of individuals who work as disguised employees are also caught by IR35.

The question of whether your contract is "Deemed Employed" or "Self-Employed" is fundamental to how IR35 is applied, so HMRC issued IR56 to clarify things.

Here are some example questions used within the IR56 test:

* Do you have to Creepy Crawlers the contract personally (as opposed to subcontracting or using a colleague)?

* Do you have a "manager" at the client who tells you what to do, how to do it and when to do it?

* Are working hours fixed both in terms of when and for how long you work?

* Do you risk your own money?

* Do you provide all the main equipment required to complete the job?

The results of this questionnaire are not sufficient on their own to fully determine your status as it can be open to much personal interpretation, especially when there is a monetary incentive attached to the outcome.

Your actual employment contract or contract for services would also need to be professionally assessed; this is known as an "IR35 review". This can cost up to 200 per contract and is what usually detours most contractors from entertaining the "Self-Employed" route.

Further information relating to this article can be found on href="crystalumbrella.com/advice.php">crystalumbrella.com/advice.php

Mark Milligan works for Crystal Umbrella, recognised as one of the leading specialists in the UK for taxation support and advice. Crystal Umbrella was specifically set up to provide a more tailored and bespoke PAYE payment solution for UK contractors

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