At its simplest, IR35 is the way in which the taxman closed a loophole that was allowing many contractors and freelance professionals to avoid paying large amounts of tax and National Insurance Contributions (NICs).
IR35 Tax Rules
The term "IR35" became established following a Budget press release issued by the then Inland Revenue on 23 September 1999. That press release was called "IR35" and the legislation it announced has become generally known as IR35.
The IR35 tax rules were designed to prevent tax avoidance by workers using personal service companies, composite companies and partnerships – these have all come to be known as "intermediaries". Workers had been using intermediaries to reduce their tax and NIC liabilities when really they should have been paying tax as if directly employed.
It became common for someone to stop being an employee on the Friday and to start as a contractor on a Monday. They sat at the same desk and did exactly the same job, but were paying much less tax than the people around them.
The new tax rules said that, if an intermediary was being used and the employment relationship between the worker and their client would have normally been direct employment, the worker should pay tax and NICs like any other employee.
Another important feature of IR35 is that it also targets family run, or more specifically, "husband and wife" companies.
At Tarpon we have a team of IR35 tax specialists
To speak to one of our tax experts call 01582 390 000.