IR35 Explained

IR35 was introduced by the UK Government in April 2000. Its aim is to stop disguised employment. In other words, bring the level of tax on people working through personal service companies in line with the tax on the earnings of payroll staff.

In its most simplified form if you work for one company as your only contract, then the Inland Revenue considers you to be employed not self-employed and you are liable to pay the extra tax.


PAYE and Contracting

Prior to IR35, the Inland Revenue accepted that if you worked through a limited company then you were not employed by your client. This meant you could avoid PAYE tax and reduce your NI contributions. In effect, you could leave your full-time job with a company and return the next day to do the same job as a freelance consultant for a considerable increase in take home pay.

IR35 puts an end to much of that. In fact, it is estimated that 80% of IT contractors are affected by the new rules and fail the 'IR35 test'. This is an Inland Revenue measure which determines under what category contractors fall under - whether you are a genuine contractor or 'akin to employed'.

To find out if you pass the IR35 test, answer 11 simple questions below, or visit www.hmrc.gov.uk and go to leaflet IR56 'Employed or self-employed. A guide for tax and national insurance' or contact us now and we provide FREE independent assessment of your situation.

If you find that, like so many other contractors, passing this test is a major problem, there is another way of reducing your tax bill and maximising your income - join IFL Management today!

Take the IR35 test

If you can answer 'Yes' to the following questions then you are probably employed and the Inland Revenue will investigate you for outstanding tax and National Insurance contributions if you are not currently paying them.

If you are in any doubt phone us now on 01784 226980.

  • Do you carry out the work rather than hire someone else to do it for you?
  • Does someone else tell you what needs to be done and when to do it?
  • Are you paid by the hour, week or month and can you get overtime pay?
  • Do you work set hours, or a given number of hours per week or month?
  • Do you work at the premises of the person you work for, or where he or she decides?

If you can answer 'Yes' to the following questions then you are probably self-employed.

  • Do you have a final say in how the business is run?
  • Do you risk your own money in the business?
  • Are you responsible for meeting the losses as well as taking the profits?
  • Do you provide the main items of equipment you need for your job, not just the small tools many employees provide for themselves?
  • Are you free to hire other people on your own terms?
  • Do you currently have to correct unsatisfactory work in your own time and at your own expense?

Impact

Have you passed the IR35 test or is it still concerning you?

You have a right to be concerned. Did you know that whilst the ruling is not retrospective, the Inland Revenue can claim back unpaid tax for up to seven years? The longer you leave taking action the more tax you may need to pay. Will you be able to find the cash?

Plus if you earn for instance £50,000, you could be missing out on the opportunity to increase your net income by as much as 20%. Every day you delay could be costing you money, and yet it doesn't cost a thing to call us to find out how much you could save. Contact us now on 01784 226980 .

The positive news is that whilst IR35 has forced many contractors to change their employment status, as a result they have found that they can increase their net revenue and reduce administration workloads.