IR35 Explained

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Many of Speedy’s posts mention the term IR35.  Whilst those in the contractor industry understand the term only too well it can often feel like a controversy that’s already raging but the basics are never really explained. 

We thought we’d put together a little guide for those of you who are curious as to what this little abbreviation is that’s causing so many problems. 

 

So what is IR35??

  • A piece of tax legislation

 

Who does it concern?

  • Individuals who are avoiding paying tax they should be

 

More Specifically?

  • People who are contracted to work for a client through an intermediary

 

What counts as an ‘intermediary’?

  • Your own limited company
  • Service or Personal Service Company
  • A partnership

 

So what’s the big problem?

  • HMRC believe that the above are actually just ‘disguised employees’
  • They don’t really think the contractor should be classed as ‘self-employed’ and so should be taxed like a general employee.

 

What does this all mean

  • Basically if HMRC consider you to be taxed like a normal employee even if you’re contracting through an intermediary then you are said to fall under IR35

 

Why is falling under IR35 such a big deal

  • If you do you are taxed like an employee but receive none of the benefits of really being one.

 

What are those tax implications?

  • The intermediary (your own company/partnership) has to operate PAYE and National Insurance Contributions on any salary or wages it pays you during the year.

 

 

If nothing else what should I remember?

  • Basically you fall under IR35 if HMRC don’t consider you to be self-employed and you are contracting your services. 

 

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