Understanding IR35

As a freelance contractor you need to get to grips with IR35. The following provides an overview of the important information you need to know:

Background to IR35 IR35 was implemented back in April 2000 and this tax legislation was designed to prevent what the Labour government coined as ‘disguised employment’. In short it prevents contractors working in an identical way to a company employee whilst taking payments as a self-employed person.

How IR35 impacts you IR35 affects your pay along with your relevant tax code and the level of business expenses you can claim. To fall outside of the IR35 requirements a contractor will pay themselves expenses, a salary and dividends. If you are affected by IR35 then you will pay yourself a salary and expenses only. Make sure you are covered

1. Check any contracts You must ensure that all contracts are worded correctly including the necessary elements for self employment. This includes:

Right of substitution
Right of control
Tools of trade
Basis of remuneration
Trading structure
Business organisation
Financial risk
Terms of engagement
Mutuality of obligation

2. Get your client to sign an IR35 confirmation letter

A confirmation letter can help you to avoid an IR35 investigation which can lead to you having to pay thousands of pounds in backdated tax. Again here your client will put their name and signature to a letter outlining how you work which in conjunction with your contract provides you with a rock solid account of your status as self employed.

3. Physical contract Taking steps to put together a robust IR35 contract and letter of agreement is an easy way of protecting yourself but you must ensure that they are a genuine representation of how you work. You must carry out your assignments in line with your documented contracts as the HMRC will monitor closely how the physical engagement is carried out.

At Churchill Knight we offer a comprehensive service to contractors and self employed workers.

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