What Is IR35?

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The IR35 legislation has been around for some time now and was first introduced in 2000 by the government, in order to put a stop to ‘disguised employment’.

IR35 – Am I Inside or Outside?

IR35 can be complicated when it comes to determining exactly what your status is.  This is where an IR35 accountant can be a really useful for contractors who are unsure where they stand within the legislation.

It is HM Revenue and Customs that determines which way your practices fall, whether you are classed as ‘inside’ or ‘outside’ IR35; and if you are investigated they can check whether your contract truly reflects your working practices. Payroll Heaven offers a free verbal IR35 review of your contract, for more information click here.

Outside

If you are ‘outside’ IR35 then you will essentially take home more of your earnings.

Some examples of being outside of the legislation are if you:

• Risk your own money through your business
• Are required to handle any losses, as well as profits
• Can bring in additional workers
• Have complete control and final say over how you work
• Use your own equipment for work – although this can be a grey area as some companies insist you use their office equipment.
• Have no employee benefits – Contractor’s outside of IR35 should not be entitled to benefits such as holiday or sick pay, pensions or training courses.

What if I fall inside?

If your contract is ‘inside’ IR35 then HMRC will view you as having the same benefits as a permanent employee, which will affect the expenses you can claim for, as well as result in you paying full tax and National Insurance contributions if challenged.

This isn’t all bad news as there are still some benefits, which include:

• Being entitled to claim for some expenses, such as travelling and accommodation.
• Benefitting from the Flat Rate VAT Scheme, which will save you money throughout the year and earn interest on the funds held in your own company account.

IR35 Calculator

There are several types of calculators available on the internet which will tell you your maximum take-home pay when working inside or outside IR35.

Some will ask you to simply enter your daily/hourly rate along with whether you work inside or outside IR35, whereas others like the HM Revenue and Customs calculator, works out how much you need to pay to the Revenue if your contract falls inside IR35.

The only issue with using an online IR35 calculator is that working out take-home pay can be quite complicated and very much dependent on quite a few other variables which the calculator will not take into account; therefore having a contractor accountant can give you more accurate and detailed advice.

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