What is IR35... in plain english?!
For those of you who are asking exactly "what is IR35"?
This information will help you. IR35 is basically a piece of
legislation introduced by HMRC (previously, the Inland Revenue)
back in April 2000. This piece of legislation is now almost
eleven years old! But what is IR35? Well, the
legislation was brought into play to try and put a stop to
disguised employment. It became apparent that many
contractors were setting up limited companies to simply try and
avoid paying tax. If you took the limited company out of the
equation, in some cases it was obvious that the individual was
simply an employee of his/her client and should therefore have been
paid via PAYE and taxed accordingly. HMRC instigate random
enquiries into businesses each year to establish what the true
relationship is. If they believe that IR35 applies i.e. the
individual should in fact be regarded as an employee of its client,
the individual in question will have to repay the tax owed.
In some cases, HMRC will backdate any tax due and can investigate
up to 6 years previous work. They can also charge penalties
and interest on top of the amount due making IR35 a very expensive
problem. In many situations, businesses have been forced to
close down. Contractors can choose which of its contracts
fall within IR35 and which fall outside (based on the current rules
set by HMRC) so you don't have to commit all of your income to
PAYE.
IR35 is a tricky piece of legislation as it is not black and
white. There is certain criteria to be met in order to be
considered 'outside' of IR35 (not caught by the legislation), and
it is recommended that if you haven't already sought professional
advice, please do so without delay. Professionals, who deal
with IR35 on a daily basis, can offer some guidance and tools which
will help you provide your services compliantly. If you would
like to contact us for further information please do so on 0117 904
7755 or at info@nasaconsulting.com.