A brief overview of what the intermediaries legislation (IR35) is, and how it is determined whether you are 'inside' or 'outside' IR35.

1. What is IR35?

2. • IR35 is the common name for the
Intermediaries Legislation, which is designed
to combat tax avoidance. The IR35
legislation is targeted at individuals who are
providing services through their own limited
companies or partnerships and who may not
be paying the tax that they should be.
• The legislation should be of huge concern to
all contractors; the financial ramifications of
falling foul of IR35 can be significant so it is
vital that everyone understands how it
works.
What
is the IR35
legislation?

3. • First issued in 2000, IR35 targets those
workers considered in the eyes of the HMRC
to be ‘disguised employees’. Contractors,
being technically self-employed, are not
taxed in the same way as average
employees, taking dividends from their
company and paying far less in National
Insurance Contributions.
• Because of this, HMRC are keen to ensure
that those working as contractors (and
paying less tax) are indeed genuinely in
business on their own account, and are not
working in the same way they would have
been if employed directly by their client.
Why
was IR35
introduced?

4. • Some of the criteria used to determine
whether someone is ‘inside’ (i.e. caught) or
‘outside’ IR35 is common sense; if you act
like and are treated like an employee you
should be taxed as one.
• However, there are a lot of grey areas in the
legislation and some points which may seem
relatively insignificant can have a major
impact. Therefore it’s always best to consult
an expert before making any decisions over
your IR35 position.
How
is IR35
determined?

5. • If you choose to work ‘outside’ IR35 and take
dividends from your company, you run the
risk of being on the receiving end of an IR35
enquiry.
• This is effectively an investigation where
HMRC review your circumstances and
ultimately decide whether or not you have
been paying tax correctly.
‘Outside’
IR35

6. • If they decide that you are a ‘disguised
employee’ and found to be ‘inside’ IR35, you
will be required to make a deemed payment,
effectively paying back all tax and NI you
would have paid if you were an employee
(plus interest and a possible penalty).
• This can easily run into tens of thousands of
pounds, which is why IR35 is such a big issue
for contractors.
‘Inside’
IR35

7. • In an enquiry, HMRC will look at the contract you
have with your agency (or end client if direct), so
this is the first thing to check when deciding how
to trade. Some contracts will contain negative
clauses from an IR35 perspective, so it’s
important to have it reviewed as early as
possible.
• They will also delve into the actual relationship
between you and your client, commonly
referred to as your actual working practices.
• If your contract is IR35 compliant but they
subsequently find that you are treated like an
employee in reality, they will effectively say the
written contract is worthless. It is therefore vital
to ensure that your contract and working
practices mirror each other.
IR35
enquiries

8. HOW TO SURVIVE
AN IR35 ENQUIRY
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IR35
SURVIVAL KIT
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9. Contact Us
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