Briefly, IR35 is a name used for the ‘intermediaries legislation’, it is a piece of legislation that was introduced in 1999 and enforced in April 2000.
The legislation is a set of tax rules that applies to you if you work for a client, through an intermediary which can be a limited company or a ‘personal service company’ which is how many contractors operate.
It is intended to combat the abuse by individuals who would otherwise be treated as an employee, were it not for the fact they provide their services via their own personal service company (PSC), as working in this manner enables an individual to make substantial tax and NIC savings.
Before April 2017, all contractors were responsible for making an informed decision as to whether or not the contract they are undertaking falls within the scope of IR35.
Should HMRC launch an investigation and find out that the contractor has been operating their Limited Company incorrectly,and that the legislation applied to them, penalties would be issued by HMRC for any unpaid taxes.
As of 6th April 2017, in the public sector, the compliance burden and potential liability for unpaid tax shifted up the supply chain. Uncertainty and panic led to many end clients and agencies to opt for a blanket ban forcing contractors who operated as a ‘PSC’ to be pushed onto Umbrella or PAYE where taxes are deducted at source.
When this legislation is extended into the Private Sector, many contractors could see themselves pushed to Umbrella or PAYE also, just like what happened with the chaotic Public Sector reform.
You can expect to pay about 25% more in tax every year, so it is in your interest to try and ensure that it does not apply to you – regardless of what you think your status is!
Accountancy firms such as NumberMill are taking a stance against HMRC in an attempt to combat the private sector reforms coming into play in April 2020, however HMRC needs to hear this from contractors also.
If you are interested in taking action, you can help by contacting your local MP’s to discuss the issues surrounding IR35 and address the concerns.
The Contractor Calculator has provided some information to assist with this which you can find by utilising the following link:
Email: firstname.lastname@example.org | Tel: 0333 121 2001
Published: 11th December 2018