IR35 can seem like a very complex and confusing topic for many people, but it is important to understand this piece of legislation in order to make sure you run your business legally.
The legislation has been around for some time now and was first introduced in 2000 by the government in order to put a stop to ‘disguised employment’.
It prevents people from trying to reduce their tax liability and National Insurance, by leaving full time employment and then returning to the same job immediately as a contractor working through their own limited company.
IR35 – Inside or Outside?
It is HM Revenue and Customs that determines which way your practices fall, and if you are investigated they can check whether your contract truly reflects your working practices.
If your contract is caught by IR35 and you are ‘inside’, then HMRC will view you as having the same benefits as a permanent employer, which means that you won’t be able to claim certain expenses and will have to pay full tax and National Insurance contributions.
However, you will still be entitled to claim for some expenses, such as travelling and accommodation, 5% of your turnover and you can benefit from the Flat Rate VAT Scheme, which will save you money throughout the year and earn interest on the funds held in your own company account.
If you are classed as ‘outside’ IR35 then you will essentially take home more of your earnings.
Some examples of being outside of the legislation are if you:
• Risk you own money through your business
• Are required to handle any loses, as well as profits
• Can bring in additional workers
• Have complete control and final say over how you work
• Use your own equipment for work – although this can be a grey area as some companies insist you use their office equipment.
• Have no employee benefits – Contractor’s outside of IR35 should not be entitled to benefits such as holiday or sick pay, pensions or training courses.
How can an IR35 accountant help?
Sometimes it’s not simple working out whether you are outside or inside the legislation and so with employment status being such a complicated issue it can be useful to gain professional advice.
An accountant who specialises in IR35 will be able to guide you when it comes to the legislation; this will include being able to advise you on IR35 insurance and what actions to take if you dispute the status that HMRC have given you.
A good IR35 accountant will be able to work out the best way for you to take home the most money and ensure it’s all been done legally.