Ir35?

[harriett123]

I've read about IR35 on sjdaccountancy.com/what-ir35 for contractors but I still dont understand it. Can anyone explain it simpler for me please.

Thanks - Harriett123

 

[mrods]

Hi Harriett123
IR35 is complicated, the legislation was set up in April 2000 to combat tax avoidance, it affects contractors who do not meet HMRCs definition of 'self employment'. I believe it applies to anyone who works via an intermediary such as a company or partnership.
HMRC now offer Business Entity Tests which are designed to help you assess if you are likely to fall inside or outside of IR35.
Basically IR35 determines the way that you are paid. Before the introduction of the legislation contractors invariably worked through their own Limited Companies and drew dividends from the profits, which do not attract national insurance contributions. However, HMRC determined that, if a contract falls inside IR35, the contractor would be obliged to draw a salary from their company.
For contractors who had a Limited Company, but no staff, this meant that they were both employer and employee and subsequently, as well as income tax, both employee’s and employer’s national insurance were payable.
Hope that helps, if you need any further help, take a look at Contractor Umbrella's post on IR35 contractorumbrella.com/what_is_ir35.html

 

[businessmoney]

What is IR35

The aim of the IR35 legislation is to eliminate the avoidance of tax and National Insurance Contributions (NICs) through the use of intermediaries, such as Personal Service Companies or partnerships, in circumstances where an individual worker would otherwise. =D

According to ClearSky Accounting the IR35 was first put in place to address the growing trend of contractors using personal service companies to avoid the correct payment of tax and National Insurance Contributions. Before the introduction of this legislation, companies were able to avoid tax payments by contracting third party service providers, which were actually disguised employees. 8)