SPOTLIGHT - Government Legislation - IR35

As the elections are looming and the government is reviewing the way we all pay our taxes we thought it would be an appropriate time to review some of the governments’ key interim legislation.

What is IR35?

IR35 was introduced by the labour government in 1999 as a tax legislation and in some way it affects all interim workers although all interims may not fall inside of IR35 (LTD company workers). It came into force on the 06th of April 2000 and has since been a HOT TOPIC within the contract market.

The HMRC use this piece of legislation to identify and stop National Insurance and tax avoidance schemes (eg. Intermediaries). Through this process the HMRC have reviewed the way in which interims are perceived on the tax system. They found that where workers were originally classed as “self– employed” they should have been PAYE with the end client due to working practices and the terms and conditions they were working to. Such workers were deemed by the HMRC as employed therefore tax and NI reclaimed. Since 2000 the courts have established employment and tax status criteria in the form of ‘Employment Status Tests.’

Does IR35 affect you?

PAYE workers fall within IR35, deductions are automatically made for tax and national insurance contribution from the workers salary; all income is subject to employed levels of PAYE/National Insurance Contributions.

LTD company workers can fall within and outside of IR35, however this piece of legislation is very subjective therefore the LTD company must be able to demonstrate the assigned worker is providing services over a fixed period to a client through a business to business relationship.
LTD companies that fall outside of IR35 are more efficient in terms of tax and national insurance contributions.


How to reduce the risk of being investigated by the HMRC or if you are investigated how to reduce the risk of being caught inside of IR35;

The company should ensure that the terms and conditions in place between them and the agency/client clearly identify the company as being outside of IR35.
A LTD Company contractor should not be seen to be treated as an employee of the Client. There should be a clear distinction between the way contractors are treated for IR35 purposes.
The LTD Company should be seen to have conducted a full assessment for each assignment and should not presume that each assignment has the same IR35 status.
The LTD Company should be able to demonstrate that it is providing a service

If you require further information you/your LTD Company should seek expert IR35 advice.