IR35/IR56

In the budget 2000, "News release IR35" announced the Chancellor's intention to tackle tax and NIC avoidance through the use of personal service companies.

Up until then, intermediaries such as service companies could be set up to provide the services of one individual to a client company enabling the client to make payments to the company without deducting PAYE or NIC. The worker would be able to take payments from the company in the form of dividends instead of a salary saving national insurance in the process.

The new rules were therefore proposed to remove the opportunity for the avoidance of tax and national insurance by the use of any intermediaries i.e. personal service companies.

HMRC’s “definition” of a personal service company is drafted broadly as follows; “the legislation may affect any kind of intermediaries so no particular intermediary will be defined in the legislation”.

The HMRC has given a large list of guidelines that you can try to follow — available on their website www.hmrc.gov.uk but that will still not guarantee IR35 safety.

A common question that has been asked is "Does the new legislation apply to people working for umbrella companies?", well the HMRC answer is simply "YES"

In short if you contract your own services to one client and are acting like an employee of that company, beware!!!

There is no way around IR35 unless you change your working practice and contract, but there is a way to maximise your earnings in the face of it.

Employed or Not Employed

http://www.hmrc.gov.uk/pdfs/ir56.pdf