ir35faq

What is IR 35 about?
IR35 was originally conceived to tackle the problems of tax and NICs avoidance
through the use of intermediaries such as service companies or partnerships. Largely
it was to combat certain individuals from leaving their current employment, opening up
their own limited companies and then contracting themselves back out to the same job.
By paying themselves in company dividends and not in salary, they would avoid paying
their NI and tax contributions.

What were the proposals?
23rd September 1999, to:

Place responsibility for complying with the new rules on the service company or partnership,
rather than on the client; and
Use the existing tests used to determine the boundary between employment and
self-employment for identifying contracts affected by the new rules.

When do the new rules come into effect?
Announced by the Chancellor in his 1999 Budget speech, the rules came into effect on the 6th April
1999.

Who will be affected by the proposals?
Anyone supplying their services through an intermediary such as a service company or partnership
will need to think about the new rules. If it is deemed that the worker could have worked directly
with the client, and the advent of the service company was made in addition to requirements,
then you will meet the needs of IR35.

How does the Inland Revenue determine between employment and self-employment?
The Inland Revenue base their rules on case law history. An overview of these rules
can be viewed at the UK IRD site.

What if I am audited and the IRD decide I have failed to comply with IR35?
The repercussions will be the same as if you failed to pay appropriate
contributions for PAYE and NI as outlined in the Inland Revenue leaflet
IR 109. IRD will seek to recover all unpaid taxes, plus interest and
may prosecute if you are suspected of negligent or fraudulent
conduct.

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