Advice for IR35 Contractors

IR35 (short for ‘Intermediaries Legislation’) is a set of tax rules brought in by the government to crack down on contractors who are deemed to be disguising employment through the use of a limited or personal service company.

The government introduced IR35 in order to stop employees returning to a previous employer as a contractor in an effort to reduce their NI contributions and tax liabilities and disguise their employment from HMRC.

A prime example of ‘disguised employment’ is where an employee leaves their job at the end of one week and then returns to the same company at the start of the next week but as a contractor, despite doing the same job role they carried out previously.

You will be classed as ‘inside IR35’ if your contract has the same responsibilities, liabilities and risk as a permanent member of staff and you will therefore not be able to take your income as a combination of salary and dividends as you would if you were a Director of your own limited company; instead, you would be liable for the full amount of tax and National Insurance contributions as you would if you were a permanent employee.

Changes in Legislation from 1st April 2017

The government will introduce changes to IR35 legislation on 1st April 2017 which puts all IR35 contractors, and public sector contractors especially, at risk. The main change is the shifting of responsibility for assessing your IR35 in the public sector to the organisation that pays you, which in most cases will be your end client or agency.

In the event that they get their assessment wrong, your client would be liable for the back taxes owed. This has created quite a stir in the public sector as most organisations will not want this level of increased risk.

Most agencies and organisations in the public sector are simply not up-to-date with the latest changes in legislation so it is important that you act now.

If you are unsure of your IR35 position then you can use this handy tool we have developed to help you assess your situation: https://accountantsleicester.ir35testing.co.uk/TakeTheTest

If you require any help or advice on IR35 legislation, please contact the team at Gower Accountancy today on 0116 220 6019.