 What is IR35?
IR35 legislation was implemented in April 2000. These changes were introduced by the Inland Revenue to counter tax avoidance (not evasion) in the area of service provision (i.e. Private Limited Companies).
The contractor community in general (and IT contractors in particular) were identified as “tax avoiders”, resulting from the tax saving benefits they enjoy when working through a Private Limited Company, while performing roles similar in nature to those of permanent employees.
The Inland Revenue initially stated that the legislation targets were ‘Friday to Monday’ workers (permanent employees who return the next Monday morning as contractors). It has since become clear that IR35 has been implemented and targeted at contractors but not just those in the IT sector. Its scope has increased beyond this sector and careful consideration needs to be made as to whether your contract is trapped by IR35 or not? Again help is at hand from Managed Service Companies (Umbrella), some Accountants and of course the Inland Revenue if you are not sure and need advice.
IR35 has resulted in increased National Insurance liabilities, administration and significant reduction in expenses for those contractors using a Private Limited Company and in some cases has removed the option of trading as a Private Limited Company altogether. In short, for the majority of contractors this is no longer a financially attractive option. However, its demise has increased the popularity of Managed Service Companies (Umbrella) as the preferred payment vehicle and increasing numbers of experienced contractors are also migrating to this trading style.
Does IR35 apply to you?
IR35 applies to all contractors who do not meet the Inland Revenue definition of "self employment".
As a rule of thumb, if you only have one current contract, you travel to the same workplace each day, you are paid by hour or day rate, you work under the jurisdiction of the client and you have no right of substitution (i.e. if you cannot go into work that day, you cannot send a replacement in your place) then you will probably fail the Inland Revenue’s self employment definition and it is likely you will be trapped by IR35 legislation.
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