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IR35

 

 

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Key Issues

Are you caught by IR35?
What are the rules?
Improving life under IR35

Capabilities

Sam Corcoran has worked with IT contractors and their companies through the implementation of IR35. He has given presentations on the rules and implications of the new legislation.

For contractors worried about IR35, a new employment status test questionnaire is available at https://esi2calculator.hmrc.gov.uk/esi/app/index.html

Are you caught?
Here are five questions which may help you to decide :
  1. Do you have a right to send in a substitute worker in your place?
  2. Is your work loosely controlled as opposed to a 'master - servant' relationship?
  3. Do you share the risk and rewards of your work?
  4. Do you work away from your client's premises?
  5. Do you use your own equipment?

If you can answer yes to these questions then you are unlikely to be caught by IR35.

If you can answer yes to only some of the questions you may still not be caught.

At the end of the day you have to step back, look at the overall picture and ask whether you are a 'quasi employee' of your client.

 
 
If you would like specific guidance from an expert in the field then please call me on 01270 753038.

 

IR35 rules summary
If you are caught by IR35 then you have to account for tax and National Insurance on a high salary calculated as follows:
Take the income of the company from the relevant contracts
deduct 5%
deduct travel and subsistence payments (and some other expenses)
deduct any pension contributions made by the company
the balance must be paid out as National Insurance and salary to the worker

Please note that this is a rough summary of the rules and should not used as a basis for accurate calculations.


Tips for improving life if you are caught by IR35
Review your pension arrangements
you are now receiving a high salary and so can make high pension contributions based on that salary

 

 

IR35 only applies to money earned after 5/4/00
money earned before that date can still be paid out as dividends

 

Consider transferring shares in your company to your spouse
you are probably a higher rate taxpayer, but your spouse may not be. If you receive dividends then you will pay higher rate tax, but your spouse would not. However, you should bear in mind that transferring shares to your spouse transfers ownership of the company.

 

Consider voting a salary bonus in your latest accounts
the corporation tax rate for profits up to £10,000 is now 0%
if you have only 'IR35' income then your company is unlikely to make much profits this year and so you are likely to be in the 0% tax rate
if a bonus is voted in the accounts covering last year then this will reduce last year's profits (taxed at 10%) and increase this year's profits taxed (probably at only 0%)

 
If you have a 31 March year end then you should seriously consider preparing accounts to 5 April 2001. Please contact Achilles Accountancy Ltd for an explanation.

 

 

Send mail to enquiries@achillesaccountancy.co.uk with questions or comments about this web site. 
Last modified: November 30, 2008