IR35 Tax rules and advice for IT Contractors

What is IR35?

The IR35 was required to prevent freelancers avoiding tax by taking a small income from their limited company and topping it up with regular dividends. The goal of the Finance Act 2000 was to ensure that contractors had the same taxation laws as those working in the same job under regular PAYE conditions.

The rules and regulations

The HMRC decides whether your employment is considered to subject to the IR35 rules or not. If you're working at an office (or other location) on regular 9-5 hours, using equipment supplied by the company on the business premises, then you would be subject to the IR35 rules as you would be basically an employee.

If you were working from home as an IT contractor and have several different clients, plus the fact you use your own equipment to work, then you are in fact, self employed.

What encouraged the implementation of the Finance Act 2000?

The main reason for the IR35 was that many workers in industries such as IT, were leaving their permanent job only to return as an IT contractor working via a limited company! This meant they could take advantage of less tax and national insurance contributions as a freelancer!

Avoiding the IR35

Interested in seeing if you can avoid the IR35? If you want to avoid the IR35 regulations, your contract and work practices needs to clearly demonstrate that you are 'self-employed'.

It's always best to check if the rules apply to you by checking online for specialist contractor accountants with both the knowledge and expertise required to ensure you do everything by the book.

About the author

If you require further advice on the IR35 rules and the effects they have on IT contractor accountancy then contact ClearSky Accounting for some no nonsense accountancy advice tailored for contractors

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