Are you affected by the IR35? - By: Rutland

The IR35 legislation was introduced in 1999 and has been effective since April 2000. This legislation was introduced primarily to tackle the avoidance of payment of tax and National Insurance by contractors who were self employed but should actually have been taxed under the Pay As You Earn system. The IR35 contract is designed to differentiate between self employed contractors and employees who should be taxed under the PAYE system. The contract should be considered carefully and advice taken if you are at all unsure as there are strict rules to comply with.

One of the problems is that the term ‘self employed’ does not have a clear definition and a set of guidelines can be followed to ascertain whether an individual is self employed or relevant to taxation under PAYE. By asking certain questions it can become clear whether a person is self employed such as whether the individual has contracted start and finish times. If so, this would imply that the individual is employed by the company and should be taxed as such.

Before the introduction of the IR35 legislation it was possible for a person to set themselves up as self employed with a limited company. The person would take home a small wage, usually only as much as the tax free personal allowance, and would make up the rest of their salary with company dividends that are not taxable under PAYE, but a dividend tax which is much less. The result is that the person would have more net pay than an employee taxed under the PAYE system, which was deemed to be unfair.

Here at Churchill Knight and Associates we offer a range of specialist accounting services including IR35 accounting. We are able to help you take home as much pay as possible whilst within the legislation of HMRC.

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