If you are an IT contractor, self-employed or looking to go into IT contracting, you will be subject to IR35 tax law.
IR35 came into effect in April 2000 and is aimed at eliminating the exploitation of a tax loophole. Prior to IR35 it was possible for freelance or contract worker to avoid paying tax and National Insurance contributions by setting themselves up as a company.
You are liable under IR35 legislation if:
• You personally provide services for another person or organisation (the client)
• The circumstances under which you provide services for a client under a contract are such that you could be regarded as an employee of the client for tax and National Insurance purposes
Under IR35 legislation, it is necessary for you to construct a contract with the client based on all the circumstances under which you are providing a service. This contract must include all the terms and conditions of the contracted work to be undertaken and the exact substance of the work being undertaken. Depending on the exact content of the contract, existing employment status tests are used to establish whether the contract could be deemed a contract of employment or service. If so, IR35 tax laws come into effect.
The legislation also applies if you are working through an intermediary company – such as a contractor agency – and the intermediary meets the criteria of a Managed Service Company.
HM Revenues & Customs runs a programme of compliance monitoring whether IR35 tax legislation is being adhered to. If you are found to be in violation of IR35, all of your previous and future contract engagements will be investigated and you could be subject to interest and penalties charged on any outstanding tax and National Insurance contributions that are owed.
More detailed information on IR35 tax legislation can be found in our contractor advice section.
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The information on these pages is provided for your information and reference only. Before making any important decisions regarding your employment or any legal matter, you should consult a qualified professional adviser who can provide specific advice based on your individual position.