What is IR35?
Running your own limited company brings with it certain advantages, including tax savings from dividend distributions.
Prior to 2000, these advantages were being exploited by a small minority who sought to incorporate their own company for the sole purpose of avoiding PAYE and NIC liabilities on all of their income. These individuals would create a company but continue working for the same employer, reaping the benefits of working through their own business without any real change to their working practices.
In order to police this, IR35 was introduced in 2000 and looks at the employment status of someone working through a limited company, determining whether a particular contract falls inside the legislation (caught) or outside the legislation (not caught).
IR35 is complex and requires expert assessment, however, the concept is to review both the wording in a contract, and the working practices of the worker whilst performing under that contract. Once assessed, if it appears that the worker is controlled or managed in any way, then it is possible that contract will fall inside the legislation.
Where this is the case, IR35 allows HMRC to tax the worker as if they were employed by their client, essentially meaning they may not pay themselves a dividend from their company. It is important to note that in checking the IR35 status, both the contract and working practices must be reviewed and as such, it’s important you seek expert advice.
At JSA, we offer a fully compliant IR35 Review service to all of our Limited Company clients.