IR 35

With the potential to save money each year in tax, most contractors are usually interested in structuring their work practices to fall outside of IR 35, so it is important that you know a bit about it as it affects all people in the contracting business. By getting in contact with a member of our experienced staff, they will be happy to help you fully understand the implications of IR 35.

IR35 was designed to deal with “disguised employees”, who are individuals the government believed were taking advantage of a corporate structure when they should have been taxed as any other employee. The intention of the legislation being that, apart from specified deductions, all money received by the intermediary in respect of relevant engagements should be treated as paid to the individual in a form subject to Schedule E income tax and class 1 national insurance – in effect dividend payments and many business expenses are not allowed.

Effects
Where there is IR35 income and income exceeds that paid to the worker as salary (after certain expenses) the excess will be deemed to be salary subject to PAYE and NI in the tax year to 5 April.

Failure to correctly account for PAYE and NI can result in significant penalties and interest.

The intermediary will be allowed to deduct certain expenses in respect of IR35 income specifically:

*Expenses deductible as an employee
*Company contributions to approved pension schemes
*Employers NI
*A flat rate of 5% of the gross income from relevant engagements

At Polaris Accountants, our most popular IR35 service involves reviewing your current work practices and providing an opinion on how we believe HM Revenue & Customs would categorise you. We will prepare a detailed report on the positive, neutral and negative aspects of your current working arrangements and make practical suggestions on improvements you may wish to consider.