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
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
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.