IR35, the tax man and you.

So what is IR35?

IR35 was the rather catchy name given to an Inland Revenue bulletin released in 1999.

IR35 was issued in response to a 1990s trend, whereby employees of companies were transferring to contractor status and then carrying on exactly as before. Same employer. Same office. Same job.

The great benefit was that as contractors people could manage things in such a way that they could avoid large amounts of tax and national insurance quite legally. IR 35 started to close this loophole.

What does IR35 have to do with me?

It probably won’t surprise you that HMRC was a little perplexed at the loss of tax and NI revenues from these contractors. Hence IR35.

IR35 set out the principal that if a contractor’s relationship with their client was essentially that of an “employer and employee”, then the contractor should pay employee’s tax and NI using PAYE.

There are other elements to IR35 but essentially it began the trend of scrutinising contractors, their businesses and their tax positions more closely than ever before.

How does IR35 impact on my choices?

If for example you’re in a long-term contract with a single client it could be argued you are in fact an employee of that organisation. Your limited or self employed status could be called into question under IR35.

In general, if HMRC deems that you have gone limited or joined a composite company for example, primarily to avoid paying tax and NI, you could well end up with penalties and a big back-tax bill.

HMRC has also stepped up the number of businesses it inspects for tax in recent years, so it’s crucial you keep accurate accounts if you’re contracting and don’t want to risk big penalties.

How can I sleep at night?

The safe, easy, legal alternative, accepted and approved by HMRC, is to join Liberty Bishop’s umbrella company as a PAYE employee and use our accounting services for contractors.

Our umbrella company offers total peace of mind! Relax!

Liberty Bishop
Clayton House, 3 Vaughan Road, Harpenden, Hertfordshire AL5 4EF

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