In a nutshell, IR35 came into effect in April 2000 and was designed to stop contractors working as disguised permanent employees i.e. benefiting from the tax advantages of being a contractor without accepting the increased responsibilities of company ownership. This means working with the same level of responsibility, control and liability expected of directors of other limited companies.
For example, an IT worker may resign from their permanent role on a Friday but return on Monday doing the same job, at the same company, same desk with the same manager. The only difference is they are now doing the job as an IT Contractor working through their own limited company.
Due to the increased work, risks and responsibility there are certain tax advantages, for example, dividend payments (profits taken from your company) through a limited company do not attract National Insurance contributions, which is fair enough as you wouldn’t be able to benefit from all the standard employee benefits such as holiday pay, sick pay, pension etc.
What is inside and outside IR35?
Essentially if you have the same benefits, responsibilities and control as a permanent employee, then you would more than likely be classed as inside IR35 (caught by IR35). In summary, some of the key factors that determine if you’re inside or outside IR35 are control, financial risk, substitution, provision of equipment (sometimes, especially insecure sites you may have to use a client-side equipment), the right of dismissal and employee benefits.
Many of the above will be detailed in your contract. However, it is best to remember that although HMRC will more than likely want to see your contract, your working practices must reflect what is in your contract. Please also be aware that you’ll read all sorts of information about IR35 and urban myths many of which aren’t true. So it is always best to seek professional advice (SJD would be happy to help, simply call our new client services team on 01442 275789 or email firstname.lastname@example.org).
Even if you are inside IR35 it may still be beneficial to work through your own limited company, see this page for more information Inside IR35 working through a limited company. Or you may want to visit this page more advice on IR35 rules, IR35 Business Entity Tests or IR35 Calculator.
How does IR35 affect me?
The easiest way to find your IR35 status is to have an IR35 Contract Review to determine whether your contract falls inside or outside of IR35. If you would like a free verbal contract review, please fill out the form at the bottom of this page and one of our friendly experts will call you back.
If you are at all worried by IR35 or have any further questions please call our IR35 specialists on 01442 275789 or email email@example.com. Alternatively, complete the below and we’ll get back to you as soon as possible.
If you would like to have your contract reviewed please take a look at our IR35 Contract Review Service.