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What is IR35
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Posted On :
Mar-19-2010
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Article Word Count :
492
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If you are a media creative then you might already know about the IR35 rules and regulations. IR35 affects all contractors who don't come under HMRC's classification of 'self-employment'. Read this article to find out more about the IR35 rules and how to best avoid them.
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IR 35 is a piece of legislation brought in by the government in 1999. The name derives from the press release used to announce the introduction of the legislation "Inland Revenue press release 35".
IR 35 does not change the way in which you provide your services nor does it change the legal status of your employment. What IR 35 does do is decide how your tax liability should be calculated. IR35 was introduced by the government as an anti avoidance measure to stop contractors and freelancers setting up their own companies and paying less tax than an employee who is performing the same work. Therefore, you can be inside IR35 but still legitimately own and run your own limited company.
No other piece of legislation in current times has produced so much anger as IR35. This is not because of the aims of the legislation but is more due to the way the legislation is worded and implemented by HMRC, which at times has been seen to be heavy handed and inconsistent.
How does IR35 work?
If you run a "personal service company" (typically a company owned and controlled by you, with you being the sole person providing services to clients) then every time that you, or more accurately your limited company enter into a contract that contract may become subject to the IR 35 legislation.
If the contract does fall within the IR35 legislation then in broad terms, the income that is earned from the work you have undertaken is treated as "salary" and PAYE tax/NIC is calculated on it regardless of how you actually receive the income. IR35 "deems" that for tax purposes only, you should be treated as if you were an employee of your client rather than a director and shareholder of your own limited company.
What do I need to do to avoid IR35?
IR35 treats each contract or assignment on a case by case basis. Therefore, if you undertake two contracts in a year, one could fall inside the IR35 rules and one may fall outside.
The starting point is to ensure that you have a written contract with your client. The most important thing to remember is that you should not solely rely on the agreement. There are a number of companies out their willing to draft a compliant IR35 contract for you. However, HMRC will use the contact as the starting point. They will go one to establish how the contract works in practice and use the practical aspects to make their decision rather than what is written in the contract. As an example, if the contract allow you to supply a substitute by your client refuses to accept any substitute, HMRC will ignore the right of substitution.
A number of contracts have assumed that they are safe from the IR35 regulations simply by relying on the terms of their contract.
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Article Source :
http://www.articleseen.com/Article_What is IR35_13877.aspx
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Author Resource :
If you require further advice on the IR35 rules and the effects they have on contractor accountancy then contact ClearSky Accounting for some no nonsense accountancy advice tailored for contractors.
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Keywords :
accounting, specialist, accounts, accountants, fixed fee, contractors, freelance, IR35, ClearSky, Quay, Accounting, IT contra,
Category :
Finance
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Finance
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