A United Kingdom tax legislation designed to tax disguised employment at a rate similar to employment, IR35 is targeted at identifying individuals who are avoiding paying the tax that they should be and intends to prevent individuals from avoiding tax by ‘disguised employment’ - working as self-employed contractors through their own limited company even though they do the same job as an employee. Basically, if you are a limited company contractor, working very much like a permanent employee of your client as opposed to having more of a business to business relationship, then it’s imperative that you should be paying just as many taxes.
Her Majesty’s Revenue and Customs (HMRC), a UK’s tax and customs authority, was introduced in April, 2000, to combat tax avoidance. If HRMC decides that your contract puts you within IR35, you should pay tax and National Insurance like an employee, rather than taking your director’s fee and dividends.
Now coming to the term ‘Disguised Employee’, it means workers who receive payments from a client via an intermediary and whose relationship with their client is such that had they been paid directly they would be employees of the client. Contractors who do not meet the criteria of Self-Employment set out by HM Revenue and customs (HMRC) and are seen as disguised employees, may find that they could be caught by IR35, which will increase their tax and national insurance obligation.
You’re said to be inside IR35, if your contract is giving you the same benefits as your client’s full-time employees. Some examples of employee benefits are job security, sick pay, holiday entitlement and pension contributions. On the other hand, you’re said to be outside of IR35 wherein you would be working as a separate entity and would not be receiving the benefits that permanent employees receive. As a limited company contractor who is working outside of IR35 you are entitled to increased tax planning opportunities, which compensate for the lack of job security and other benefits
If we think that IR35 may apply to you, we will write to you and ask you whether you have thought about IR35. In case if you tell us that you think you are outside IR35, we will ask you for evidence.
As the director of your limited company, it’s you and not your end client, who is responsible for ensuring that the contract is IR35 complaint and that you are complying with all relevant legislation including IR35.
In case, you have any questions about IR35 OR about becoming a contractor OR would like an IR35 contract review, then please GET IN TOUCH with one of our Business Team members to clear your doubts and be aware of the correct picture.
You can contact our Business Team at Email: email@example.com OR Call Us At: 01322 303 276..
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