Right People,

Right Time, Right Place

Important Legislation

New legislation, introduced in April 2000, affects anyone who is working via an intermediary, such as a company or partnership. IR35 will only apply if the individual is working for a client under circumstances that if it were not for the imposition of the Limited company or Partnership (known as the “intermediary”) would be one of employment. (The Inland Revenue argues that in these cases the individual is “a disguised employee”.)

Anyone working via an intermediary will be caught by new rules if they fail the ‘IR35 test’. This test determines whether the person would be an employee if they were contracting directly with the ‘client’, rather than using this intermediary. If their terms and conditions or working practices are of employment then they will be caught by IR35 legislation.

IR35 Legislation
The IR35 legislation is designed to increase both the Tax and National Insurance (NIC) to the Inland Revenue from the service industry, which on the whole has found it more tax efficient to distribute income as dividends, usually subject to the payment of a small salary. To this end, it introduces the concept of "deemed salary" which will be taxed and subject to NIC as if it has been paid as a salary. The Government’s concern is that small limited companies are being used to disguise employment, so this is the test which has been applied:

Where the employee is provided by his/her Company to an ultimate client on terms which would normally constitute an employment with that client, this is called a relevant engagement and the IR35 rules apply.

Please click here for more details.