IR35 Explained

If you run, manage or own your own company then you will have more than likely heard about the ‘IR35’ legislation, and if you haven’t you should have. At ClearSky Accounting, as an accountancy expert, we’ve outlined everything you need to know about IR35.

What is IR35?

The IR35, so called after the Inland Revenue (now Her Majesties Revenue & Customs) press release number 35 of that year, is ‘Intermediaries Legislation’ introduced to ensure companies working through intermediary companies, such as personal service companies, are paying the appropriate tax.

Why was it introduced?

According to HMRC:

“The aim of the legislation is to eliminate the avoidance of tax and National Insurance Contributions (NICs) through the use of intermediaries, such as Personal Service Companies or partnerships, in circumstances where an individual worker would otherwise –

  • For tax purposes, be regarded as an employee of the client; and
  • For NICs purposes, be regarded as employed in employed earner’s employment by the client.”

Before the introduction of the legislation, individuals were able to avoid paying tax as an employee when receiving payments for services and only paying NIC in the Class 1 bracket by providing them via an intermediary.

Who does IR35 cover?

The IR35 is not aimed at any industry in particular however is does apply to you and your company if you provided services to a clients via an intermediary company (usually a services company or a partnership).

In short, if you provide services to a client, via an intermediary or under an arrangement involving a third party, and the situation is such that if these services were provided directly to the client you would be considered (for tax purposes) as an employee of the client, then you are required to pay tax within the IR35 bracket.

What happens if I ignore the legislation?

If it is found that you have not followed the proper protocol and ignored the legislation then measures will be taken to ensure that you pay the appropriate tax and NIC, and interest and penalties may be added on top.

Click here for more information on IR35 and how to avoid any penalties or charges.  

Author Bio: Leah Jarratt is a regular guest writer for ClearSky Acounting, your accountancy expert.

Comments (1)

  • This legislation and others is an attempt to fill the government coffers. The recession has crippled governments and they are seeking new ways to add to revenue. I see it in the U.S. in the form of sales tax or closing tax loop holes.


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