IR35 is legislation introduced in April
2000 to combat what HMRC describe as “disguised employment”. An example could be if an employee leaves his PAYE
employment one day and rejoins the same company the next day carrying out the same job - this time as a
contractor rather than a full time PAYE employee. IR35 is intended to stop contractors utilising Limited
Companies purely to reduce tax and NI costs.
So what does this mean in
If your contract has the same level of
risk, responsibility, liability, and control as a full time PAYE employee then you would be caught by IR35
legislation. You would have to pay full tax and national insurance.
What if I am caught by
You can still claim 5% of your turnover
as expenses and benefit from the flat rate VAT scheme however the tax benefits of the Limited Company are
Do you control your
own work pattern or are you directed and managed by your client?
Financial risk –
what level of financial risk is your company taking? Ie. bad debts, asset purchases
Substitution – if for
example you became ill, does your contract allow for someone else to undertake your
Equipment – employees
generally would not purchase and utilise their own equipment
Termination of contract
– employees have a notice period as protection and comfort; contractors should have an immediate dismissal
clause in their contract
Employee benefits –
contractors have none
Please feel free to call to
discuss IR35 and its specific implications for your
Accounts and tax advice for contractors and consultants in the Oil & Gas
and IT industries.