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IR35 Explained

IR35 is legislation brought in by the Government in April 2000, to counter what HMRC class as a disguised employment.

The aim of HMRC's IR35 legislation is to stop people leaving full time employment and then returning to the same job straight away as a contractor working through their own Limited company, in order to reduce their tax and National Insurance libilities each year.  

An example of HMRC's view of disguised employment would be if a permanent employee were to leave their place of employment on a Friday and then return to work on the Monday, at the same company, doing the same job they ahd finished on the Friday, but as a contractor rather than a permanent employee.

IR35 Inside or Out?

If your contract has the same level of risk, responsibility, liability and control as a regular employee,then you would be classed as inside of the IR35 legislation. This means you will have to pay full tax and full National Insurance (instead of the usual salary and dividends from the profits of your company) and reduced expenses i.e. you'll earn less money. This is because HMRC believes that as you aren't taking the financial risks or have the same level of control as a director of your own limited company, you aren't entitled to the same corporate tax structure.

If your contract and working practices look like you are inside IR35 it can still be worthwhile operating via your own Limited Company as you can still claim certain expenses.

Contract and working practices tips

The IR35 legislation is complex, and the only way of being sure you are operating outside of IR35 is to have your contract and working praactices reviewed by a professional.  Here are just a few tips and points that cover what HMRC are looking for to see whether you are inside of the IR35 legislation:-

Those were just a few considerations, HMRC can look at a very wide picture on assessing IR35, no matter how long the contract is running for or has run for, the contract and practices must satisfy HMRC that you are operating outside of IR35.  
Contact Pilgrims today, and we can assist with all matters IR35.