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Helping you navigate the complex rules around IR35
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As a contractor it is imperative you are aware of IR35 legislation, what it entails and the risks involved. Even if you are relatively new to contracting, you should not ignore IR35, as it affects everyone in the contracting business. In a Nutshell, IR35 legislation tries to tax your company income as employment income meaning that all the tax advantages gained are almost lost.
IR35 affects contractors working through a limited company. The Intermediaries Legislation (IR35) came into force in April 2000 and was designed to deal with “disguised employees”, individuals that the government believed were taking advantage of corporate structures when they should have been taxed under employment as any other employee. The rules only apply to "relevant engagements", that is, where an individual provides services to a client through an intermediary (a limited company) and, but for the existence of the intermediary, the income would be treated as that of an employee if the individual had contracted directly with the client.
All the income earned is treated as employment income and therefore the tax advantage is lost. It was intended that IR35 legislation would ensure compliance with tax law so that apart from specified deductions, all money received by the intermediary in respect of relevant engagements would subject the individual to Schedule E Income Tax and Class 1 National Insurance, thus all dividend payments and many business expenses were not allowed.
To determine whether you are inside IR35 or outside IR35 there are three main tests to establish employment status:
there are many other factors:
When the facts have been established it is appropriate to look at the overall picture: whether it indicates a person in business or one working as an employee. if the evidence is evenly balanced the intention of the parties may then decide the issue.
Having looked at a number of standard agency contracts hmrc has, as expected, suggested that such contracts fail ir35. hmrc will consider only whether specific contracts fail the test and will not give any clearance on standard contracts.
The conclusion, bearing in mind all that is written above, is that if you sign a standard agency contract you are likely to fail ir35 even if you have the contract reworded. hmrc will look at the facts behind the contract. so be warned and beware. Also have information regarding what expenses you can claim when inside ir35.
Being an employee, director and shareholder of your own company you get paid three elements on a monthly basis.
Some common expenses include the following, but remember you must keep all receipts and have all of them to hand for audit if necessary:
Limited time only!
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