IR35 Guides

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IR35 Guides

IR35 is the pivotal legislation that determines whether a contractor or freelancer is deemed to be employed or self employed within their contract.

This suite of IR35 Guides is designed to support your understanding and practical application of IR35 whether you are new to contracting, an existing galvanized freelancer, a recruitment agency of an accountancy working with contractors.

The IR35 information starts with basic information and story board examples which are carefully written to allow like for like comparison to actual contract situations. The IR35 articles then build on this foundation of knowledge, providing detailed information about specific aspects of contracting inside and outside of IR35.

Each article can be read independently, or the entire suite can be read in sequence to provide a solid understanding of IR35 and it's impact and application in the contract employment market.

The IR35 articles are supported with dedicated IR35 calculators so you can calculate your take home pay under IR35 with clear understanding of the impact of each element of the IR35 calculator. In addition to the calculators, we also provide an IR35 business entity test. This is designed directly on HMRC's IR35 Business Entity tests which aim to gauge whether a contractor / freelancer falls inside or outside of IR35. HMRC will stop using the business entity test in April 2015 but this remains a good gauge which you can use as a rule of thumb when reviewing a contract.

IR35: Path of Knowledge

1) What is IR35?

If you are a Limited Company contractor or you plan to become one, it is highly unlikely to have not come across the term IR35. Many new contractors are curious to know about IR35 and how it affect them when working on different contracts.
In this article, we provide a storyboard example of Tim, a fictitious individual who goes from being a full time employee (FTE) to a contractor.
The guide then moves from story board to IR35, looking in detail at how each aspect is related to Tim, his situation and his contract. The end result is an IR35 Study case that you can use as an example and compare to specific contract work.

Read the article: What is IR35?

2) How does IR35 affect me?

It is a well-known fact that Limited Company contractors have significant tax advantages when compared to full-time employees. However, if contractors are caught by IR35 rules, there can be a major impact on their take-home pay.
In this article, we look how IR35 affects contractors. We continue to use the example of a fictitious individual Tim, who chooses to become a Limited Company contractor only for saving taxes.
We look at different scenarios, and how Tim’s annual take-home pay is impacted by being outside or inside of IR35.

Read the article: How does IR35 affect me?

3) Are you contracting Inside or Outside of IR35 Legislation?

All Limited Company contractors in the UK are worried about IR35. Being inside IR35 can completely negate the tax benefits associated with being an independent contractor.
If a contractor is caught inside IR35, it would mean similar, or sometimes more, payments in taxes and National Insurance Contributions (NICs) in comparison to a full-time employee with similar income.
In spite of knowing the tax risks of being inside IR35, many contractors are not fully aware of the key differences between being inside and outside IR35. In this article, we try and understand the main factors that impact the IR35 status of contractors.

Read the article: Are you contracting Inside or Outside of IR35 Legislation?

4) IR35 and Pensions

As all contractors are aware, being caught inside IR35 can lead to a significant reduction in take-home pay. However, if found inside IR35, pensions can come to a contractor’s rescue and minimize the tax shock of being inside IR35.
The biggest advantage with pensions is that any pension contributions are counted before calculation of taxes.
Let’s look at how pensions minimize the effect of being inside IR35 for different income levels.
We look at the different scenarios using the example of Tim, a fictitious contractor.

Read the article: IR35 and Pensions

5) IR35 Tax Penalties

It is a well-known fact that being inside IR35 leads to higher income tax and National Insurance contributions. However, there’s something that’s worse.
If contractors are aware of being inside IR35 and yet decide to hide it, or if contractors are found inside IR35 as a result of an investigation from Her Majesty’s Revenues and Customs (HMRC) investigation, they may have to pay penalties in addition to taxes.
In this article, we understand the IR35 penalties in detail using the example of Tim, a fictitious contractor.

Read the article: IR35 Tax Penalties

6) IR35 Enquiry Process - what you need to know

All Limited Company contractors are aware of IR35 and its risks.
Being caught inside IR35 means extra taxes and National Insurance contributions, and sometimes even additional penalty. However, most contractors are not aware of the process of an IR35 enquiry.
In this article, we look at the steps involved in an IR35 enquiry.
We look at the enquiry through the example of Tim, a fictitious contractor, who is faced with an IR35 enquiry.

Read the article: IR35 Enquiry Process - what you need to know

7) Working conditions in relation to IR35: Example Scenarios

There are several factors that influence the IR35 status of contractors. Some of these factors include control, business risk, mutuality of obligation, and so on.
If there’s an IR35 enquiry, Her Majesty’s Revenues and Customs evaluates all these factors from two perspectives -- the actual contract and the contractor’s working conditions.
Contractors are often confused with various working conditions in relation to IR35.
In this article, we look at some working conditions, which can confuse the contractors from an IR35 point of view.

Read the article: Working conditions in relation to IR35: Example Scenarios

8) IR35 Misconceptions

IR35 is a complex piece of legislation.
As of December 2014, the law has been in existence for nearly 14 years, but even now there’s a lot of doubt and misconceptions among contractors regarding IR35.
In this article, we look at the common misconceptions about IR35 among Limited Company contractors.
We continue the series with the example of Tim, a fictitious contractor.

Read the article: IR35 Misconceptions

9) How to Contract outside of IR35

No contractor wants to be inside IR35 - FACT.
In an earlier article, we have seen some factors that determine whether a contractor is inside or outside IR35.
In this article, we give some tips on how contractors can minimize the risk of being caught inside IR35.

Read the article: How to Contract outside of IR35

10) History of IR35

IR35 or Intermediaries Legislation 35 is a commonly-used term in the vocabulary of UK’s independent contractors.
While the original legislation was introduced in 1999, since then it has gone through several changes.
In this article, we look at the history of IR35 from 1999 to present date.

Read the article: History of IR35

The IR35 calculator is designed for illustration purposes only. Whilst we aim to deliver high accuracy, we make no guarantees on the accuracy of the financial calculations made.

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