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The IR35 Test for Contractors

 

Much has been said about this tax law which brought to an end a very lucrative contracting lifestyle for some. The Labour Government brought in this new law back in 2000.

It's meant to stop what is called ‘disguised employment' and make people working through their own limited company as a contractor pay the same tax as an employee.

It wasn't directed at all contractors, just the ones who were really working as employees of a client but doing so via a limited company.

Contractors who worked for just one client, on a single ongoing contract, were in the firing line.

Many such individuals used to work as an employee for a company, resign their job on a Friday then turn up the following Monday - doing the same job, at the same desk, for the same manager - but as a contractor and not an employee.

The client liked this arrangement because it meant they did not have the burden of the social costs (insurances/sick days/taxes/etc) of the individual. The contractor liked it because they would be paid more for doing the same job. The real losers in all this were HMRC.

IR35 stops that. There are no precise figures, but it's reckoned that 85% of IT contractors are caught by IR35. That is they are not ‘real' contractors but actually working as ‘employees'.

 

Consider your own working habits, if you say ‘yes' to any of the following questions you are probably caught by IR35 and working through your own limited company is not a viable means of reducing your tax bill.

Are you the boss? Are you told what to do or do you decide what needs doing?

Who does the work? Is it you or do you get someone else to do it?

What equipment do you use? Is it your own or do you use your client's PC etc?

Where do you work? At the client's office or your own premises?

When do you work? When it suits you or as per the client's normal opening times?

How are you paid? Is it one lump sum for the job or by the hour/day?

Anyone who is caught by IR35 is simply wasting money & time if they trade through their own limited company. An umbrella company is the answer, it's cheaper and involves far less administration and paperwork for you. For a full list of umbrella companies

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1. How to find the best umbrella company
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written on2010-07-29 23:43:45

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