| The Inland Revenue introduced IR35 in April 2000 as a means to prevent contractors from using a range of tax aversion methods. Many contractors chose to use methods such as Partnerships and Personal Services Companies. If you are currently contracting and do not meet certain rules for self employment then you need to find out how IR35 affects you. As a contractor, you are responsible for making sure your tax affairs are in order and kept up to date.
Getting help with IR35 is easy and you certainly don't have to tackle the complicated legislation alone. By hiring an IR35 expert you will have access to the best advice and information there is. IR35 does not affect all contractors which is why it is important to find out how your individual employment circumstances relate to IR35 rules.
So, how could IR35 affect you? Well, if you do fall under IR35 then everything you earn will be deemed as your salary, and tax and NIC will be deducted as if you were working as a permanent employee for your client. This could mean you end up paying a significant amount of tax and up to 20% more than a contractor who is not caught by IR35. The amount you pay will of course depend on your hourly rate and you could be hit hard if you are at the higher end of the scale. If you earn £40 an hour this could equate to £800 a month, a significant chunk of your salary in other words.
IR35 legislation is a bit of a grey area and there are no hard and fast rules. This is why it is important to invest in an IR35 expert so that you can be prepared for any higher rates of taxation you may be facing. Using an IR35 calculator can also give you an indication of the tax you could be paying. The most important thing to remember is that IR35 is your responsibility and this view is held by HMRC so it is essential to get your house in order from the start. Failure to comply could result in heavy fines being imposed and in the worst cases, imprisonment.
Each time you receive a new contract it needs to be checked to see whether you fall under self employed status or IR35. Finding an accountancy company to help in this area is easy and there are many companies available online. As long as you remember to treat each contract as an individual entity you should be able to keep on top of IR35 and the implications it can have on your employment and your final salary.
IR35 affects contractors & freelancers in a number of ways. Clearsky Accounting, a UK Contractor Accountant , can help you understand the intricacies of IR35. |
Article Details
