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Limited Company Accounts

IR 35


IR 35 Legislation was introduced on  April 6th 2000 in an effort by HMRC to address the reduction of tax collected from individuals who were being paid and treated as subcontractors when in reality they were employees of a business.


 The employer would avoid paying class 1 National Insurance of 13.8% and the subcontractor could organise his remuneration between salary and dividends to reduce the tax and NI liabilities.



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Seaford           01323 301340




In its simplest form IR35 sets out to determine the distinction between being employed and self employed  i.e. a contract for services (self employed) and a contract of service (an employee) as there is no legislation on statute regarding this we rely on common law (historical cases) to establish the factors that are relevant.


So what are these factors?


The contract

The working practices of the contractor.




The main tests for IR35 were addressed in the case of Ready Mixed Concrete in 1968. In general the tests revolve around being able to prove that the contract with your client is “strong” ideally in all of the following areas (although if you are really strong in one you may be outside IR35)




Mutuality of obligation.


The following is also relevant to this to a lesser extent than the above 3 items:


Financial Obligation.

Intention of the parties.

Working practices.




There are various things that you can do to make your position better from a IR35 perspective, some of which include:


Having an IR35 review of your contract (we can help you with this).


Getting IR35 insurance (this generally covers the litigation expenses related to fighting your case with HMRC).


Purchasing a tax investigation insurance (this covers additional accountancy costs in the case of an investigation).


Naturally if you are clearly within the realms of IR 35 then it is advisable to pay yourself accordingly (i.e. predominantly through salary), which we are able to assist you with. Call us now for more help and advice.

Why don't you call us now to see what we can do for you.

Seaford 01323 301340

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