Google reviews
November 30, 2014

An introduction to IR35

IR35 is tax legislation first introduced in 2000, which affects freelance contractors. IR35 is more properly known as the ‘Intermediaries Legislation’. Since April 2000 contractors have had to determine whether or not each contract could be perceived by HMRC as ‘disguised employment’. The original stated aim of the measure was to prevent workers from setting up limited companies via which they would effectively continue to work as employees of their former employer, now their client, but saving on taxes. This is known as ‘Friday to Monday’ contracting. But the application of IR35 is far wider than this minority scenario.

IR35 is now a significant concern to most freelance contractors. Unfortunately, there is no way to determine for certain whether or not a contract is subject to IR35 unless a dispute between a taxpayer and HMRC reaches the courts. The best way to defend an IR35 position is to avoid it becoming a dispute in the first place by taking the necessary preventative measures. We can advise you on this.

A contract that is subject to the higher IR35 tax regime is referred to as ‘IR35 caught’. A contract that is not subject to taxation under IR35 rules is referred to as ‘outside
IR35’. The objective is to prove that a contract is outside IR35 and, therefore, you are able to draw dividends from the profit of your limited company. Dividends are more flexible than salary and do not attract national insurance deductions. Consequently the net income from your contract is considerably greater.

How do I avoid IR35?

In order to avoid IR35 you need to be able to prove that you are genuinely self-employed and working in business on your own account. This sounds straight forward, but, in fact, the distinction between employed and self-employed for contractors under IR35 is grey.

To avoid IR35 successfully you need a specialist contractor accountant to guide you.



Recent Articles

Make sure your will is up-to-date and you have planned for IHT

Make sure your will is up-to-date and you have planned for IHT

Many of us will die without a will because it is something that we fail to get around to, often because we don’t want to think about our own demise. Around half of UK adults don’t have a will, with a third of those over 55 in this position, according to research from...

UK Export Finance doubles limit to £10m for traders

UK Export Finance doubles limit to £10m for traders

Small businesses looking to access funding to expand their exporting opportunities can now fast-track their applications with UK Export Finance, the Government’s export credit agency, and apply for twice the previous amount. The limit available now is £10m. The move...

Exporters must make declarations on a new system from March 30

Exporters must make declarations on a new system from March 30

Any trader making export declarations needs to move to a new HMRC system from March 30 this year. The CHIEF system is being fully replaced by the Customs Declaration System, and anyone who has been using the old system will now have to move across. There has been a...

Ready to join us?

Whether you’re a contractor, freelancer, or small business, Bright Ideas can help remove the burden of time-consuming and complex finances. We’ll draw on our years of knowledge and experience earned helping sole traders just like you.

When you choose us, you’ll be assigned a dedicated Account Manager who’ll provide one-on-one support that’s customised to your business. Communication is key, so we’ll always answer your questions or requests as soon as we can. In fact, we offer a same-day response guarantee for emails and calls received before 3pm.

Contact us to get started

Give us a call us or send an email today!

Looking to switch accountants?
We make the transition simple.

Does your current accountant give 1-to-1 support? Are they fast and thorough?
Slap-dash services hold businesses back, so try our experts instead.

Move to an accountancy service that goes the extra mile…

Start the conversation

Let’s make your finances Brighter

Call us Monday to Friday 9am - 5pm

0161 669 4221

Request a call back