IR 35, the intermediaries legislation, became law in the year of 2000 via Schedule 12 of the Finance Act. It is also known as IR35 after the Inland Revenue Press Release (March 1999) that first announced the Government's plans. The main motive behind the formulation of this legislation to clamp down on perceived tax avoidance through the use of Personal Service Companies that include Limited Companies set up with the motive of endowing with professional services. Tax department noticed that many contractors were returning to do similar IT roles in similar conditions to their permanent colleagues but after getting some more amount or they were being paid a lot more than them.
On the other hand, limited company contractors were paying a very less amount as tax as a proportion of income in comparison to normal employees. Contractor inside the new legislation use a contractor umbrella company as it is cheaper in comparison to limited companies that endow with no actual benefits in case found suspected by IR35. In case, contractors use the limited companies, the tax calculations would be the same.
Many a time, it is seen that contractors, basically first timers, wait for sometime until they have signed a contract prior to start addressing this new legislation. If you wait, then you are creating more chances of being caught by IR35. Therefore, you should keep some points in mind the reduce the financial impact of the new legislation. IR35 status of contractors also depends on the contract and working arrangements. Apart from this, those contractors who haven't taken any step to avoid the new legislation may also caught as disguised employee.
Before you face any financial or tax issue through the new legislation, it is important to calculate your tax through IR35 tax calculator. At the same time, it is also important to calculate how much tax, National Insurance, loans and other similar things. In case, contractors are caught through the new legislation or they receive extra tax bills to pay, then the problems could be severe. Therefore, it is important to find out how much the new tax legislation would cost you by using the IR35 tax calculator. You can also get help from experienced lax experts or ask the members of any reputed tax firm. Today, there are a number of renowned tax firms that offer services that are compliant with IR35, AWR, disguised remuneration, and a similar other relevant legislation.
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