What is IR35?

What is IR35? IR35 is a piece of legislation that the government brought into effect in April 2000. It was designed for the sole purpose of preventing disguised self-employment.

It would be that permanent employees would leave their jobs on a Friday, only to return on the Monday as a contractor working through a limited company. Their job hadn’t changed at all; the only thing that had changed was their ability to take advantage of the tax saving benefits that come hand in hand with contracting through a limited company.

When you consider the increased workload and risks that contractors are exposed to, it is fair enough that they receive certain tax saving benefits.

If you are about to undertake a new contract, its worth getting it checked by the professionals, just for peace of mind if nothing else. To find out more about how we can arrange an IR35 contract review, call us on 020 7481 4743.

Working out if you are inside or outside IR35

There are a few telltale signs that your contract could fall foul of IR35. If your contract is caught, its known as being “inside IR35” but if your contract is deemed to be fine, you are “outside” the legislation.

A good way of determining if your contract could be inside IR35 is to assess the benefits that you receive. If you have the same benefits, responsibilities and level of control as a permanent employee, there is a high chance that your contract could fall inside IR35.

Here are a few more factors that determine whether you are inside or outside of IR35.

  • Level of control
  • Level of financial risk
  • Do you have the right to dismiss employees?
  • Provision of equipment

Remember that there is a chance that HMRC will more than likely want to see a copy of your contract, so its best to get a second opinion from the professionals and have your contract reviewed.

What to do if you are inside IR35?

If you are inside of IR35, you have a few options available to you. You could work through an umbrella company, but there is still the opportunity to work through a limited company and retain a greater percentage of your earnings.

To find out more about the differences between a limited company and an umbrella company, read our comprehensive guide on limited vs umbrella.

Being inside IR35 means that you’ll have to use your limited company slightly differently.

You’ll still be able to register for the Flat Rate VAT Scheme, which means that you have the opportunity to add thousands to your income from charging VAT on invoices. The Flat Rate Scheme isn’t available to contractors working through a limited company.

Just because your current contract is outside of IR35, it doesn’t mean that all of your future ones will be as well. Therefore it is still worth starting a limited company so that you can use it in its full capacity further down the line.

Our qualified accountants are used to working with contractors who’s contracts fall inside IR35, so to find out more about your options if you are inside the legislation, call us on 020 74814743.

Risks of not getting an IR35 review

We always recommend that you get your contract reviewed by an IR35 professional. If it is deemed that your contract falls inside IR35 and you have been working as if you were outside the legislation, it can cause you a bit of a headache.

HMRC will impose penalties for the error and they might even consider backdating your tax, meaning that you’ll have to pay all tax that should have been due to HMRC on top of any penalties.

The last thing anyone wants is to be issued with a bill like that, so even if you are 99.9% sure that your contract falls outside of IR35, it is still important to get it checked. There could be the smallest detail, that you may have missed, that makes the contract fall inside the legislation.

Now that you have a more comprehensive understanding of IR35 and the importance of getting your contract reviewed, you might also find the following guides useful: