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Frequently
Asked Questions
IR35
What
is IR35?
IR35
was announced in the Annual Budget in March 1999.
The intermediary (your Limited company), not clients
(your agency), will be responsible for operating
the legislation.
The
intention of the legislation is that all income
received by the intermediary is subject to Schedule
E and Class I National Insurance Contributions.
In effect, dividend payments and many business expenses
will not be allowed.
It
is important for the intermediary to decide for
each engagement, whether the contract is on an employed
or self-employed basis.
How
do I know if I'm employed or self-employed?
1.
Control
If you have the right of control as to what work
is done, where, when and how it is done, then you
are self-employed.
2.
The right to get a substitute as a helper to do
the job
A person who has the freedom to choose whether to
do the job by himself, or whether to hire somebody
to do it for him, is self-employed.
3.
Provision of equipment
A self-employed contractor provides whatever equipment
is needed to do the job.
4.
Financial risk
A worker who risks his own money to buy assets needed
for the job, bears their running costs and pays
for any overheads, is self-employed.
5.
Basis of payment
Employees are paid a fixed monthly salary or an
hourly rate. Self-employed workers tend to get paid
a fixed amount for a particular job.
6.
Profit from sound management
A person whose profit or loss depends on his capacity
to reduce overheads is self-employed.
7.
Right of dismissal
The right to terminate an engagement by giving notice
is classed as employment.
8.
Employee Benefits
Employees are entitled to sick pay, holiday pay,
pension, expenses and so forth. Self-employed workers
are not.
9.
Length of engagement
Long-term work for one employee may class as an
employment. Regular work for the same employer may
also indicate that there is a single and continuing
contract of employment.
If
you fall under IR35
If
your contracts are caught by IR35, your deductions
are limited. Pension contributions, employers National
Insurance, and 5% of income will be allowed as deductions.
In addition, Schedule E expenses (those incurred
'wholly exclusively and necessarily in the performance
of the duties under the contract') will be allowed.
Schedule E expenses are:
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Travel
and subsistence |
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Professional
indemnity insurance |
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Subscriptions
to relevant professional bodies |
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