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What is IR35?
IR35 is probably the most important piece of tax legislation to affect freelance contractors working in the UK. If you fail to consider IR35 and its effects you could either wind up paying to much tax or face a large and unwanted tax bill in years to come.
IR35 affects the individual contracts that a contractor works on.
If you work on a contract deemed to be Inside IR35 all billings relating to the contract (except allowable business expenses) must be paid in the form of employment income subject to full Pay as You Earn (PAYE) deductions.
If you would like to discuss IR35, umbrella company solutions or going into business with your own contractor limited company call an experienced Commonwealth Contractors Account Manager now on 0800 294 4388 or Submit your details and we will get right back to you!
Why was IR35 Introduced?
The Government introduced IR35 (Intermediaries Legislation) in April 2000 in an attempt to remove the opportunity for workers to avoid employed levels of tax and national insurance by using an intermediary such as a Limited Company. The government argued that if the intermediary were removed the worker would be considered an employee of the client and therefore subject to employed levels of tax.Prior to the introduction of IR35 any contractor could set them self up in a limited company and benefit from self employed levels of tax. Contractors would take a small salary from the company, claim business expenses and otherwise take the remainder of contract income in the form of dividends. As National Insurance contributions do not apply to dividends the worker would pay less tax than if a normal employee of the client.
The Government estimated that it was loosing a lot of money in tax revenue and decided to act with IR35.
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