IR35 Rules and Regulations and why you as a contractor need to know what they are - By: Gareth Hoyle1

Confused by IR35?

IR35 legislation came into power in the Finance Act 2000, and is used to tax "disguised employment" at a rate similar to employment. The main aim of IR35 rules and regulations is to stop contractors taking measures to avoid National Income tax.

In this context, "disguised employees" are classed as contractors who receive payments from clients via an intermediary - who the contractor has a direct relationship with, and is such that if they have been paid directly they would in fact be employees of the client.

Before 2000, contractors who owned their own companies were allowed to receive payments from clients direct to the company and to use the company revenue as would any small company. Company profits could be distributed as dividends, which are not subject to National Insurance payments.

Are you inside or outside IR35?

IR35 rules and regulations checklist

If you can answer 'yes' to the following questions you could be deemed inside IR35:

Does your Client have the right to control how you perform your services, what tasks have to be carried out, when and where they must be performed?
Are you obliged to accept work and is your Client obliged to supply work?
Are you committed to fulfilling your contract personally
Are you committed to working for just one Client?

If you can answer 'yes' to the following questions you could be deemed outside IR35:

Can you (with written permission from your Client) assign someone else to carry out your duties?
Are you in business on your own account and are you responsible for the success or failure of that business?

While these are important factors, exceptions do occur and your working practice needs to be considered carefully to ensure it reflects your contract. For your own peace of mind you should get your individual circumstances and contract checked by a specialist contractor accountant. Even if your current contract is outside IR35, you should have an understanding of theIR35 rules and regulations because your next contract may not be.

About the Author

Find out more about IR35 rules and regulations at ClearSky, the leading specialist contractor accountant in the UK.

Article Directory Source: http://www.articlerich.com/profile/Gareth-Hoyle1/57594

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