Complete IR35 Guide

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What is IR35?

IR35 is a piece of legislation which allows HMRC to treat private contractors as if they were employees. It was introduced to combat the problem of "disguised employment", where employees offer their services via limited companies to pay less tax and National Insurance.

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What is IR35? Dangerous ground for independent contractors

IR35 is a piece of legislation which allows HMRC to treat private contractors as if they were employees.

It was introduced to combat the problem of "disguised employment", where employees offer their services via limited companies to pay less tax and National Insurance.

Will it affect me?

IR35 is usually a threat to your income only if you are self-employed, and provide your services via a limited company.

HMRC may decide that you should, in fact, be paying tax and NI contributions as if you were an employee.

What would that mean?

If your contract is found to fall within IR35, then the difference in take-home pay usually amounts to around 20%.

But that's not all.

HMRC may choose to investigate previous contracts going back at least 6 years to see if they should also have come under IR35. So this could mean a higher tax bill and a bulk payment for previous unpaid tax, plus penalties and interest.

What do I need to do?

You need to structure your contracts and working arrangements in such a way that they fall outside IR35.

Your objective is to stop any enquiry by HMRC before it has a chance to get off the ground. This is usually not that difficult to do, but the process is technical and a bit complicated.

If you are a legitimate contractor trying to make your way through a busy year without falling foul of HMRC's complicated IR35 legislation and obscure assessment process there is a clear and straightforward action plan below.

IR35 guide for independent contractors
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Complete IR35 Guide

  • What is IR35
  • Who IR35 impacts
  • Planning for IR35
  • IR35 Action Plan
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IR35 Overview

IR35 is a piece of legislation which allows HMRC to treat private contractors as if they were employees.

It was introduced to combat the problem of "disguised employment", where employees offer their services via limited companies to pay less tax and National Insurance.

As a contractor, there are various key aspects you need to understand about IR35. These are:

  • What you need to do to structure your contracts and working arrangements such that they fall outside of IR5
  • April 2020-2021 IR35 reform
  • FAQs relating to the IR35 reform, and what you can do to prepare for the upcoming changes

We've elaborated on these points in detail in our IR35 guide.

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When is IR35 happening?

The IR35 private sector reforms will take effect from April 2021.

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What does IR35 mean for contractors?

IR35 means that contractors will need to consider their true employment status when working on an assignment to ensure that the correct tax is paid according to their status. This is currently especially true for those working in the private sector (in the public sector, the contractor will often be told their IR35 status before the engagement begins).

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What does IR35 mean for employers?

Currently, in the private sector, the responsibility for IR35 lies with the contractor themselves. In the public sector however the hiring organisation will need to determine the IR35 status of the contractor before the work begins. Changes to the current IR35 legislation proposed for April 2021 will see this also apply to most hirers in the private sector too.

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Inside vs Outside IR35 Assessment Calculator

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