IR35
IR35 are the rules introduced by HMRC which affect the way personal service companies operate designed to remove opportunities for the avoidance of tax and national insurance contributions.
IR35 will dictate the way you are able to treat payments from clients in that If through your company you are doing the sort of work for your (ultimate) client that would normally be undertaken by an employee working directly for that client, then 95% of the income (both fees and expenses) received by your company during the tax year, excluding VAT, must be paid in that tax year as salary. The company and director would also have to pay national insurance contributions on this salary.
These rules are not intended to prevent workers from providing their services through a service company but are designed to discourage the practice of using agencies simply in order to achieve a more favourable tax and national insurance regime.
Further information on IR35 regulations can be found on the HMRC web site at www.hmrc.gov.uk/ir35
This legislation is only applicable in certain circumstances depending on an individual’s employment status however there is a basic test that can be used as a guide., which in turn is determined by employment legislation.
For income to be classed as non-
If you can answer ‘yes’ to most of the following questions, you are probably employed and therefore subject to IR35:
• do you yourself have to work rather than hire someone else to do it for you?
• can someone tell you at any time what to do or when and how to do it?
• are you paid by the hour/day/week/month?
• can you get overtime pay?
• do you work set hours, or a given number of hours a week or month?
• do you work at the premises of the person you work for, or at a place or places he or she decides?
If you can answer ‘yes’ to most of the following questions, it will usually mean you are self employed and therefore not subject to IR35:
• do you have the final say in how the business is run?
• do you risk your own money in the business?
• are you responsible for meeting the losses as well as taking the profits?
• do you provide the main items of equipment you need to do your job?
• are you free to hire other people on your own terms to do the work you have taken on?
• do you pay them out of your own income?
• do you have to correct unsatisfactory work in your own time and at your own expense?
An interim management assignment by it’s very nature will most likely be regulated by IR35, whereas a consultancy assignment is likely to fall outside of this regulation.
The final decision as to whether income should be subject to the IR35 rules must be yours. You are the best judge of the detail of your business assignments and as a director of your company you have to take responsibility for such decisions.
We will certainly give you as much guidance on IR35 as we possibly can however please be advised that if you are unsure as to the course of action to be taken then you have basically two options;
- You could comply with IR35
- Seek a written decision from HMRC
As always if you are in any doubt seek clarification and should your decision still be in the balance then we would advocate that you should play safe and comply fully with the IR35 Legislation.
