HM Revenue & Customs (HMRC) introduced the ‘Intermediaries Legislation’ known as IR35 in April 2000 to address what HMRC called “disguised employment”. HMRC’s Office of Tax Simplification continue to consider the rules surrounding IR35 and this area continues to cause confusion as much depends on the contractor’s individual circumstances, their working practices and the specify contracts worked on. Below is a guide to the current rules.
Where an individual would be treated as an employee were it not for the fact they provide their services through the medium of a Limited Liability Company under IR35 HMRC have the ability to treat all income of the Company as salary of the director. This ‘deemed’ salary is liable to PAYE, Class 1 National Insurance Contributions (NIC). Certain expenses can be deducted from the income arising from relevant engagements, including travel and other expenses that can be claimed under under Section 336 ITEPA 2003, a flat rate 5% of the gross income, employer contributions to approved pension schemes, Employer’s NIC, Professional Indemnity Insurance and Professional subscriptions.
There is no statutory definition of employment – employment status cases and IR35 cases are reliant on case law. When considering whether or not you are caught by IR35 HMRC will consider the facts including a review of the working arrangements in place. There is no one deciding factor – all factors have to be considered.
See IR35 Guide for more information.