If a contractor is either a legitimate freelancer or consultant and is able to prove they do not come into IR35 legislation, then they have nothing to fear because IR35 will not apply.
IR35 Avoidance
Similarly, if they maintain an employed status, by working through an umbrella company, then IR35 will not apply.
There have been a number of traditional options for managing IR35 since its introduction in April 2000. Because the value of the market is so huge (remember, there were tens of billions of tax revenues being avoided by contractors) a large service industry has grown to support the contracting sector, providing a range of different IR35 management options. Some of these options are illegal.
A great number of composite or "managed limited service" companies have been formed as a deliberate IR35 avoidance option. Contractors become part of a "composite" limited company together with lots of other contractors, taking their remuneration as dividends and expenses, saving a considerable amount of tax and National Insurance Contributions (NICs). As the composite approach is the same as having a personal service company, whether IR35 applies or not depends on the nature of any given contract with a client. And if just one of the members of a composite falls foul of IR35 legislation, all of the members could be liable for back-tax and NICs, plus any fines.
Other contractors look to the wording of their contracts to protect them, building in some of the features described in Inside or outside of IR35, like giving themselves the right to substitute other sub-contractors, arranging their own hours and so on. Case law suggests this is not a defence against IR35.
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