IR 35 Tax Legislation

[Dave_]

Does anybody know much about this?? it sounds pretty frightening!

It seems you are less at risk as a sole trader than a limited company.

I understand there are ways to beat it by the way contracts are drawn up and the way you go about your work.


Anybody else enlighten me???

anyone had any nasty letters from HRMC????

 

[imago]

All you need to know from the horse's mouth HM Revenue & Customs: IR35 - Countering Avoidance in the Provision of Personal Services

 

[Rockingit]

IR35 was introduced about 15 years ago mostly to stop the trend in IT of people becoming a contractor, setting up a ltd company for all the tax benefits of paying dividends rather than wages, but only having one client - so in effect working as though you were an employee of a company but avoiding PAYE.

I'm sure the rules will have evolved over the years since (so don't take my word on it!), but it only really applies to directors of Ltd companies. So long as you can show more than a couple of genuine billing clients per tax year then you have nothing to worry about.

 

[Dave_]

Its not quite that simple from what I understand now (after talking to an accountant)

If you are a limited company and you engage into a fairly long contract (vague i know) with end user/client or an intermediary such as a builder you need to be careful what you sign. If you are investigated for IR35 then the taxman may ask to see the contract. Its the terms of the contract that will determine whether or not you are liable for higher NI and tax contributions. It is very typical nowadays for contracts to be offered as 'IR35 friendly' or 'IR35 unfriendly'. This doesn't mean don't sign the contract if its 'IR35 unfriendly' it just means you can't pay yourself as a dividend rather than a salary to avoid income tax (although you may have to pay capital gains tax on the dividend). If its friendly you can. hope that makes a little sense!

 

[oldtimer]

20 odd years ago the employment agencies were at this dodge and I was a sole trader who had a contract managing an installation of a BMS system and I got pulled up by HMR&C who told me to be either a Ltd company or sole trader you had to have 3 sources of income Now I had this but I thought why are these Ltd guys not getting pulled in and the answer I got was they have accountants and we do not have the manpower to check them all but when we do this paying dividends will not wash and we will expect the full PAYE tax to be paid on this plus a fine