IR35: Being In, Out and Shaking it All About

IR35 is a legislation that was into place by the Government in order to prevent ‘disguised employment’.

It works by stopping people from trying to reduce their tax liability and National Insurance, by leaving full time employment and then returning to the same job immediately as a contractor working through their own limited company.

It is a legislation that can often confuse contractors, but it is vital that you knowwhether youfall ‘inside’ or ‘outside’ IR35, as it will determine which expenses you can claim back on and if you have to pay full tax and National Insurance contributions.

In or Out?

If you fall ‘outside’ the IR35 legislation then you end up taking home more of your earnings, however, you cannot ‘bend’ the rules of IR35 – having a cleverly written contract will not be enough to avoid the legislation.

You must be 100% truthful and show that your working practices reflect your contract; otherwise you could find yourself being investigated by HM Revenue and Customs.

Examples of being outside of the legislation are if you:

Risk you own money through your business
Are required to handle any loses, as well as profits
Can bring in additional workers
Have complete control and final say over how you work
Use your own equipment for work – although this can be a grey area as some companies insist you use their office equipment.

If these points do not reflect your working practices then you may be caught by the legislation and therefore classed as being inside IR35; you would then have to pay full tax and National Insurance contributions.

However, you will still be entitled to claim for some expenses, such as travelling and accommodation, 5% of your turnover and you can benefit from the Flat Rate VAT Scheme, which will save you money throughout the year and earn interest on the funds held in your own company account.

IR35 Accountants

As employment status can be such a complicated issue it can be useful to gain professional advice in the form of an accountantwho specialises in contractor tax.

IR35 accountants will be able to guide you when it comes to the legislation, this will include being able to advise you on issues such as IR35 insurance, and what actions to take if you dispute the status that HMRC have given you.