IR35 – What is it? And what will the changes really mean?
Definitions (for the purpose of this article): Contractor: the individual who is granted work by the employer and operates either as self employed, through their own limited company or through an agency (in which case, the onus would be on the agency to determine employment status). Company: the organisation who is acting as the employer and paying for services / expertise from the contractor. What is IR35? IR35 is a set of rules that applies to workers who provide their work through an intermediary party. The rules would apply to anyone who is contracting either under an umbrella company (agency) or through their own limited companies. The rules were essentially introduced in the year 2000 as a mechanism to combat tax avoidance. They are there to ensure that an individual contractor pays the equivalent tax and national insurance contributions as they would do if they were an actual employee, working for the company on their payroll and covering the same position / responsibilities. As we will discover though, at present, this is very rarely happening. How do current contractors escape high tax payments? The way contractors have traditionally set themselves up is to incorporate their own limited company where they are the sole employee. They pay themselves the minimum wage but come the end of the tax year, they take a big dividend payment which consequently incurs much lower tax implications. This is versus receiving the payments monthly and paying normallevels of income tax and National Insurance Contributions (NIC). The latest figures from HMRCshowed that due to this loophole, an extremely low 10% of contractors complied with the current IR35 rules leading to a very urgent calls for reform. What is the current state of the Construction Industry? In the construction industry, the use of contractors is
