Introduction to IR35
IR35 was the code for an Inland Revenue press release and the code has become the name of the scheme, introduced in 2000, to catch those using a company or partnership to save tax.
The intermediary is known as a personal service company. Using it the taxpayer was able to avoid being subject to the full rigours of PAYE and National Insurance and, instead, could restrict his income and declare more-lightly-taxed dividends instead.
Here is an extract from an Inland Revenue leaflet:
Do the rules apply to me?
The rules will apply to you if you answer ‘yes’ to both the following questions.
• Would you be an employee if you worked for your client directly and not through your company or partnership?
• Does the company or partnership you work through meet the conditions set out below?
These questions are explained in more detail below.
Would I have been an employee of my client?
The rules only apply if you would have been an employee of your client, had it not been for the existence of your company or partnership.
If you can answer ‘yes’ to the following questions, you would probably have been an employee of your client for the contract in question and therefore within the new rules.
• Do you work set hours, or a given number of hours a week or a month?
• Do you have to do the work yourself rather than hire someone else to do the work for you?
• Can someone tell you at any time what to do or when and how to do it?
• Are you paid by the hour, week or month?
• Can you get overtime pay?
• Do you work at the premises of the person you work for, or at a place or places he or she decides?
• Do you generally work for one client at a time, rather than having a number of contracts?
If you can answer ‘yes’ to the following questions, you would probably not have been an employee of your client and therefore outside the new rules.
• Do you have the final say in how you do the work for the client?
• Can you make a loss on the contract?
• Do you provide the main items of equipment you need to do the job for the client, not just the small tools many employees provide for themselves?
• Are you free to hire other people on your own terms to do the work you have taken on?Do you pay them out of your own pocket?
• Do you have to correct unsatisfactory work in your own time and at your own expense?
• Do you have a number of customers at the same time?
You will have to think about each contract individually. Some people will find that they have some contracts which would have been employment and so come within the rules, and others which do not.
The number of clients you have may be relevant to the decision whether your work for each is as an employee, or as a self employed person. If you have many different clients this may indicate self employment, and be a factor that should be considered in addition to the actual details of each contract. If you have a number of different clients, but are unsure whether you are within or outside the rules, you
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