What to Know about IR35 “Tax Avoidance” | Get Financial Freedom Tips | Transform Your Financial Future


Thursday, January 31, 2013

What to Know about IR35 “Tax Avoidance”

IR35 is a government legislation that was implemented in 1999 as a method to tackle tax avoidance which was a growing practice among contractors within the 80’s and 90’s. The legislation designed to tax “disguised employment” was set up to prevent full time employees leaving their job and setting up a limited company to then return immediately as a contractor to do the exact same job. 

Such an activity was conducted by employees simply to avoid taxation and it was even encouraged by employers who were looking to reduce their responsibilities and requirements of being an employer.  However despite the legislations good intentions it can cause issues in regards to genuine contractors and limited companies. 

tax Avoidance

For those who run a limited company or are classed as a sole trader the IR35 legislation could result in money loss due to the higher taxation band outlined by HMRC. With this in mind, limited company owners and sole traders will want to make sure they are operating outside of IR35, however for many the rules can be hard to understand and navigate through. 

With this in mind it could be worthwhile for one to consider the expertise of specialist IR35 accountants that can help save time and money. The aim will be to maximise take-home pay, however to ensure this one should implement carful management when deciding on which projects to carry out. 

There are certain aspects that can make contracted work fall inside IR35. For example if any contract displays elements of control such as holiday entitlement and specific working days then it could be considered as a contract of employment opposed to a contract of services. Therefore it is imperative to ensure services are offered and provided upon the correct basis, and to do this it is advised that specialist accounts such as ClearSkyAccounting.com are utilised. 

Professional experience and knowledge will evaluate individual circumstances to determine IR35 status which in-turn will reduce the amount of worry associated with the compliance of IR35 legislation. 

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