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Working as a freelance contractor, predominantly those in IT, you should already know about the IR35 rules and regulations. The IR35 affects all contractors who don’t come under the Inland Revenue's classification of 'self employment'. IR35 became law through Schedule 12 of the Finance Act 2000, and was put into place to prevent freelance contractors from taking their income by way of a small salary and large dividends from their limited companies. This way they could pay themselves a minimum amount for their salary and get the rest in large dividends. The primary motives behind the IR35 rules were to thwart those working in the IT industry, it was common practice for them to resign from their permanent job and, after a few weeks, go back to the same job but this time working as a contractor with their own limited company. This enabled them to get paid a lot more for the same job as they were doing previously, but as a freelancer they would be paying less tax and national insurance as a proportion of their income. The Inland Revenue makes the decision whether employment is considered to be subject to the IR35 rules or not, by calculating if the person is ‘self employed’ or ‘employed’. For those working in an office or at a location on a typical 9-5 basis, as an employee with no direct responsibility and using the equipment supplied at the business premises, then the Inland Revenue would regard you as being employed by that company, this means you come under the IR35 rules. Alternatively, if you work on a daily basis at home, have a number of different clients and use your own equipment for work, then you are said to be self employed under the rules. The Inland Revenue looks at each individual case and the surrounding conditions concerning your working situation and concludes your employment class from their results. The more pointers there are to legitimate self employment the better for you as it means you evade IR35. A regular limited company contractor who the IR35 rules don’t apply to, would normally take out a reticent salary (net of employers and employees' national insurance contributions, and income tax), with the main part of income being in dividends. Those who do have the IR35 rules applied to them for a particular contract will find their earnings are notably lower than if they were classed as self-employed. Every time you consider accepting a new IT contract as a contractor, ensure that the conditions of the contract openly show that they follow the IR35 rules, meaning you are not seen to be an employee of your client. These conditions also apply to the way you do your job, such as where you work and whose tools of the trade you are using. The IR35 rules apply to each individual contract that you accept, the Inland Revenue does not look at you as a contractor. This means that you may well have 5 or 6 different contracts a year, but each one will be viewed individually. There are still plenty of contractors working who have done nothing about the IR35 issue, expecting the legislation to be withdrawn, or assuming it doesn’t apply to them. Nevertheless, the IR35 is now the law and it is your duty as a contractor to confirm if you fall within their rules or not, if you do you need to adjust your tax payments accordingly. To steer clear of the IR35 rules, your contract and working situation has to clearly show you are 'self employed' as the HMRC's employment status rules state. If you are unsure if the rules apply to you, then check online for specialist contractor accountants with expertise in IR35 and IR35 Rules. Online IR35 Accountants will be able to offer you understandable and simple advice and you can use their free tax calculator to assist you in calculating your take home pay. Check out a few websites for high-quality contractor accountants offering accountancy for contractors and accountancy for freelancers in the UK and find out how they can make certain you comply with IR35 regulations. Michiel Van Kets provides article services for Gareth Hoyle who works for Clear Sky, specialist contractor accountants with expertise in IR35 regulations and IR35 Rules. Visit the website for advice and tips, use the free tax calculator.
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contractor accountants, IR35, IR35 Accountants, accountancy for freelancers, accountancy for contractors,
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