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Becoming law through Schedule 12 of the Finance Act 2000, the IR35 rules were prompted to stop freelance contractors from claiming they were self-employed and setting up a limited company. This way they could pay themselves a minimum amount for their salary and get the rest in large dividends. The rules ensure that contractors now come under the same taxation laws as anyone doing similar work under a standard PAYE situation. The primary motives behind the IR35 rules were to thwart those working in the IT industry, it was common practice for them to resign from their permanent job and, after a few weeks, go back to the same job but this time working as a contractor with their own limited company. They did this because the money was a great deal higher due to a lower tax band and less national insurance as a proportion of their income to pay. Finding out if you are classed as employed or self-employed is dependant on the Inland Revenue; the IR35 rules apply to those who are not termed as self-employed. If your job entails you working in a particular location, such as an office, on a regular weekly routine and you are using all your employees tools at the site, then the Inland Revenue would regard you as being employed by that company, this means you come under the IR35 rules. Alternatively, if you work on a daily basis at home, have a quantity of singular customers and utilize your personal equipment for work, then you come into the self employed category. The Inland Revenue looks at each individual case and the surrounding conditions concerning your working situation and concludes your employment class from their results. The more pointers there are to genuine self employment the better for you as this way you evade IR35. A standard limited company contractor who doesnt come under the IR35 rules, would generally pay himself a salary (net of employers and employees' national insurance contributions, and income tax), with the lion's share of income paid in dividends. Those who do have the IR35 rules applied to them for a particular contract will find their earnings are notably lower than if they were classed as self-employed. Every time you consider accepting a new IT contract as a contractor, ensure that the conditions of the contract openly show that they follow the IR35 rules, this would mean that they clearly state you are not an employee of the company you will be undertaking the work for. These conditions also apply to the way you do your job, such as where you work and whose tools of the trade you are using. The IR35 rules apply to each individual contract that you accept, the Inland Revenue does not look at you as a contractor. This could mean you have 4 to 5 separate contracts over the course of a year, but each one will be viewed individually, so some may be classed under the rules, whereas others may not. Talk to any number of contractors and it becomes obvious that not everyone is familiar with the IR35 rules and regulations. Or have just done nothing about the change in law as they feel the rule will be changed again soon or believe it doesnt affect them. Nevertheless, the IR35 is now the law and it is your duty as a contractor to confirm if you fall within their rules or not, if you do you need to adjust your tax payments accordingly. To steer clear of the IR35 rules, your contract and working situation has to clearly show you are 'self employed' as the HMRC's employment status rules state. For those of you who are confused by this issue, then go online and look for contractor accountants who are experts in IR35 and IR35 rules. Online IR35 accountants will be able to offer you understandable and simple advice and you can use their free tax calculator to assist you in calculating your take home pay. Check out a few websites for high-quality contractor accountants offering accountancy for contractors and accountancy for freelancers in the UK and find out how they can make certain you comply with IR35 regulations.
Article Source: http://www.bharatbhasha.net Article Url: http://www.bharatbhasha.net/finance-and-business.php/195104 Article Added on Tuesday, December 8, 2009
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