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What Is IR35?

Intermediaries Legislation (IR35)

Contractors and freelancers fear the dreaded IR35 legislation as it questions their status as independent contractors.

We have written this guide to explain the basics of the legislation and to help make you aware of the risks involved. This guide will take you through the IR35 business tests.

As a firm of chartered certified accountants with expertise of serving contractors, we are here to help and guide you through this tricky piece of legislation.  >>Nimble Jack Accounting are known as leading IR35 accountants.

Intermediaries legislation (IR35)What is IR35?

Essentially, IR35 targets contractors, who were it not for their limited company, would be employees of their client. This means that you need to show that your contract is not just “disguised employment”.

You may wonder why being a “disguised employee” is a bad thing?  Well it means lots of extra tax as you would essentially lose the tax efficiency advantages of operating through a limited company. This means “inside IR35” you wouldn’t be able to claim many business expenses and would have to pay full national insurance contributions. Clearly this is not a positive outcome!

What is the worst that can happen?

If HMRC are successful in showing that your contact falls within IR35, they will calculate a “deemed payment” by basically treating all income (turnover) as salary and require you to pay the tax you have saved. In normal circumstances they can go back six years on a particular contract.

Please note, HMRC do not have a big success rate in IR35 investigations and the vast majority of contractors are in fact not employees, but are independent and can have a tough time proving this to HMRC.

As you can see, it is important that you have the best advice from the start and always use suitably qualified advisors.

Next: “What are the IR35 tests?”
Any questions? Speak to one of our friendly accountants on 020 7969 2879.