IR35 advice for contractors

Whether you're new to contracting or you've been around a bit, you can't have escaped hearing about IR35. It's important that you know a bit about it as it affects all people in the contracting business. It all gets a bit technical so remember, you can always call one of our expert team members on 020 7251 8690, and they'll be happy to explain it all!

IR35 was announced in the March 1999 Budget and became effective from 6 April 2000.

The legislation was designed to deal with "disguised employees", individuals whom the government believed were taking advantage of a corporate structure when they should have been taxed as any other employee.

The rules only apply to "relevant engagements" - 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. 

The intention of the legislation is that, apart from specified deductions, all money received by the intermediary in respect of relevant engagements should be treated as paid to the individual in a form subject to Schedule E income tax and class 1 national insurance - in effect dividend payments and many business expenses are not allowed.

Effects

Where there is IR35 income and income exceeds that paid to the worker as salary (after certain expenses) the excess will be deemed to be salary subject to PAYE and NI in the tax year to 5 April.

Failure to correctly account for PAYE and NI can result in significant penalties and interest.

The intermediary will be allowed to deduct certain expenses in respect of IR35 income specifically:

• Expenses deductible as an employee
• Company contributions to approved pension schemes
• Employers NI
• A flat rate of 5% of the gross income from relevant engagements

If you want to know more details about IR35, have a look at our briefing paper.

Don't worry! planIT can help you by:

• Advising on whether you currently pass or fail IR35.
• Advising on how you would have to operate in the future in order to guarantee not being caught by IR35.
• Structuring your affairs - even if you fail IR35 - in the most tax efficient manner within the regime to maximise your net income.

All you need to do is complete our online enquiry form or call us on 020 7251 8690 and we can explain it all to you.