What is IR35?

If you are a contractor, you have probably heard IR35 being mentioned a few times, but just what is IR35? In a nutshell, it is a piece of legislation that was brought into effect in April 2000 with the aim of preventing disguised self-employment.

It would be that permanent employees would resign from their jobs on a Friday, only to return to the same position on the Monday as a contractor. The only difference being that they are now able to work through their own limited company and utilise the tax saving benefits that come along with it. Contractors working through a limited company benefit from certain tax advantages, which is fair enough when you consider the increased level of risk they bear and that they aren’t entitled to the same benefits as a permanent employee. As a result, a permanent employee shouldn’t receive the same benefits

Our expert team have a wealth of experience in dealing with IR35, so we can check the status of your contract to see whether you are inside or outside of IR35. For your IR35 contract review, call us on +44 (0)1923 277 900.

Are you inside or outside IR35?

If your contract is deemed to fall foul of IR35, the popular term used is “inside IR35,” but if it isn’t caught, you are considered to be “outside” the legislation.

It’s always worth having your contract reviewed by a professional, and we can help you with this, but there are a few tell-tale signs that should give you an idea of whether you could be inside or outside of IR35.

If you are working as a contractor but have many of the same responsibilities as a permanent employee, such as the ability to hire and fire, there is a good chance that your contract could be deemed to be inside IR35. Additionally, a few other factors that IR35 takes into account are financial risk, employee benefits and the provision of equipment.

If you are inside IR35

A common misconception is that if your contract is deemed to be inside IR35, you aren’t able to work through a limited company. This isn’t the case; there are just a few changes to the way you pay tax.

Essentially, if you are inside IR35, you salary would need to be paid via PAYE deductions, but should you be outside the legislation, you can be paid via salary and dividends. Our fully qualified accountants can tell you all about this in more detail.

The importance of IR35 reviews

It is essential that you get your contract checked before you start working as contractor. Most of the time, these are just a formality and it will be deemed that you are outside the legislation. However, the last thing you want is to be in a position where you have been working for months or even years only to be told that you were actually inside the legislation all this time. HMRC would be able to issue you with a penalty and request that the appropriate amount of tax be backdated and paid.

Our experts can provide you with a comprehensive review of your contract to identify whether you are inside or outside of IR35, and help you to avoid being issued a penalty down the line. Call us on +44 (0)1923 277 900 and a member of our team will be happy to help.

Now that we have covered IR35, you might also be interested in the following pages:

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