IR35 Guide for Contractors

Introduced by HM Revenue & Customs in 2000, IR35 is a legislation that determines how you as a contractor should be taxed. With the effect of this legislation only really felt by candidates looking to or that are currently working under their own limited company. The way in which the legislation decides on how contractors should be taxed is by testing if the work being carried out conforms to genuine self employment and is therefore eligible to receive a dividend instead of just salary through their limited company.

If the contract is deemed to be one of employment or “caught” all earnings from that contract should be taxed like an employee (PAYE), however if the review deems the contract as “not caught” the contractor is able to receive dividends instead which is much more tax efficient way to be taxed.

Here are a couple of common misunderstandings regarding IR35: -

• IR35 is a choice and you can choose if the legislation applies to you. This is not true, IR35 applies to all contractors. 
• IR35 applies to the contractor so you’ll only ever need one review. This is also not true. IR35 applies separately to each contract a contractor gains. Therefore, to be sure of you IR35 status you would need a new review whenever a new contract was achieved. 
• Think you need an IR35 review call or e-mail our team to receive a FREE, no obligation consultation. We will talk you through any contractual issues you may have and explain the best trading options for you – and can also let you know which business expenses you can claim.

IR35

Introduced by HM Revenue & Customs in 2000, IR35 is a legislation that determines how your contractors should be taxed. With the effect of this legislation only really felt by the candidates looking to or that are currently working under their own limited company. The way in which the legislation decides on how contractors should be taxed is by testing if the work being carried out conforms to genuine self employment and is therefore eligible to receive a dividend instead of just salary through their limited company.

IR56 was designed to help clarify how the IR35 legislation should be applied. It is a series of questions concerning the contract and the working practices a contractor has with the end client. Once an IR35 review is completed an indication to the IR35 status should be clear, and whether the contract is deemed one of “Employed” or not is fundamental to how IR35 should be applied.

If the contract is deemed to be one of employment or “caught” all earnings from that contract should be taxed like an employee (under PAYE), however if the review deems the contract to be “not caught” the contractor is able to receive dividends instead which is a much more tax efficient way to be taxed.

Due to Managed Service Company (MSC) legislation, we are not allowed to be involved with the contract negotiations between yourselves and the agency / client (the point above that states -Influences or controls the provision of those services). Therefore we are unable to make amendments to the contract.

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