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Why Contractors Need To Understand IR35
Article Author: Brendan Beeken Posted on: April 22, 2016 (Full Author Bio in the box on the right side)
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When you work as a contractor, there are several routes you can take as to the structure of your company. You can act as a sole-trader or, alternatively, set up a limited company.
If you decide to go down the limited company route, it is important that you understand whether you fall inside or outside the IR35 legislation.
If you’re working for a client through an intermediary, IR35 will apply. This means all payments to the intermediary are treated as an employment income, where tax and National Insurance contributions must be paid by the intermediary. This ensures you pay approximately the same tax and National Insurance contributions as if you’d been directly employed by the client.
You can suffer severe penalties from HMRC if you are caught out by the IR35 rules, including paying interest on the overdue amounts. That’s why it’s so important for you to understand how the legislation works and be 100% certain that it does not apply to you.
By taking steps to clarify the details of the engagement with an end-client, and keeping paperwork to demonstrate the working practices of the contract, HMRC will have less power to argue against it.
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