Working as a freelancer or contractor through your own enterprises you’ve probably catch people about IR35 legislation.
They’ve probably spoken about it in hushed tones, like it’s this big scary thing to be feared. It’s a piece of legislation that you need to know about but it’s not actually as complicated as a lot of people think it is
And the way limited company directors are taxed. If you’re time available worker, the way you ‘re taxed is hardline control by workers. If you’re the director of a limited company, you have more flexibility in the way your extract profits out of your company so to give you an idea of this important to HMRC, worker earn 120,000 a year will pay about 5,000 more tax to HMRC than an enterprises company agency.
HMRC view this as tax avoidance. So, the overall aim of IR 35 is to determine whether you are legitimately self-employed, whether you’re what’s you’re what’s known as a disguised ‘employee’.
You’ll also find that there’s a lot of jargon around IR35 if you are caught by the rules you can be referred to as ‘inside IR35’. If you are not caught by the rules, you are ‘outside IR35’. If HMRC decides the developed an investigation your line and you have to pay worker for full time.
A major concept to get your head around to run out IR35 status called hypothetical contract.This is between you and your customer in limited company.
However, IR35 looks at the hypothetical contract that would be in place between the worker and the client.
Agent (Not always present)
This hypothetical contract is very important for IR35.Few points we’ll look around the agreement with together working practices between enterprise company and the customer. However, IR35 always look at the hypothetical contract between the worker and the client.
So, hopefully that clears up a bit of the confusion around Ir35, it’s a very complicated subject There are some points you talk about influence your status such as complete your work by yourself, whether you left the contract at any time, and whether you have control over how the work is completed.
IR35 is a tax rule to combat rule avoidance by workers endow their facility such as enterprises company otherwise be an employee it’s important to remember that each assignment needs to be assessed individually and if HMRC deem your contract to be inside of IR35 then the rules will apply HMRC are going to expect you to pay the correct income tax and national insurance. If your contract deemed inside of i-35 if you’re a personal service company you need to make sure you understand the ir35 rules and whether they apply to all your assignments otherwise you run the risk of lengthy and time-consuming tax investigation if you’re investigated by HMRC and you’re found to be inside of ir-35.
Then you potentially have to pay back dated income tax and national insurance on top of a fine so who decides if the ir35 rules apply will it really depends on who your end client is if your client’s in the public sector then they’re responsible for deciding your employment status if your clients in the private sector then for now that decision lies with you the personal service company but from the sixth event for most private sector assignments the responsibility is going to be with the end client now and complex and built up over years of employment case law they can be difficult to understand but
HMRC used three criteria
Do you client know what you work, and how when you complete your full day or week?
Are you required to carry out the work yourself, or you can send someone in your place?
Is your client obliged to offer you work, and are obliged to accept it?