Understanding IR35

This part of the guide is designed to give you information on IR35 and how it affects contractors.

What is IR35?

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

‘disguised employment’. An example of disguised employment would be if a permanent employee

were to leave their company on a Friday afternoon then return to work on the Monday, at the same

company, doing the same job role, but as a contractor rather than a permanent employee.

The aim of the IR35 legislation is to stop people leaving full time employment and then returning to the

same job immediately as a contractor working through their own Limited company, in order to reduce

their tax liability and their NI payments.

How would I be classed as ‘inside IR35’?

If your contract has the same level of risk, responsibility, liability and control as a permanent employee,

then you would be classed as ‘inside IR35’. This means you would have to pay full tax and National

Insurance contributions (instead of the usual salary and dividends from the profits of your company)

and have reduced expenses allowance. This is because HMRC believe that as you aren’t taking the

financial risks, nor have the same level of control as a director of your own Limited company, you are

not entitled to the same corporate tax structure.

We recommend that all new contracts be reviewed, ideally before being signed. If you are unsure

whether your contract falls inside or outside of IR35, RMI Accountancy offers a free verbal IR35

contract review. Alternatively, if you would like a written review, this would be charged at £150.

Are there any benefits working through your own Limited company, inside IR35?

If you are inside IR35 you will pay about the same amount of tax as a permanent employee on the

same income would. However, you can still claim: travelling and accommodation expenses, 5% of

your turnover, benefit from the Flat Rate VAT Scheme and receive interest on the funds held within

your own company – so, it could still be worth contracting through your own Limited company from a

financial point of view.


HMRC service to find out if your contract comes under The intermediaries legislation.




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