Working through a personal service company and IR35

The IR35 legislation came into effect in April 2000 and is named after the press release that announced it. It’s aimed at preventing people who are essentially employees of a business saving tax by working through a limited company.

There is a test that contractors can take to established if they are ‘disguised employees’ that fall within the scope of IR35, in general if any one of the following scenarios apply to the contractor then they are likely to be liable for IR35 taxes:

The contractor is required to attend a specific place of work within pre-set hours

Work is ongoing rather than project based

There are various people in the business capable of doing the same job

IR35 contractors are often in a worse position than being an employee of the client as they will be liable for the employers national insurance contributions as well as the other taxes an employee would normally pay, however for many contractors employment directly by the client isn’t an option neither is working as a sole trader as clients often don’t want to take responsibility for the additional employees or the tax risk of hiring a sole trader.

There are insurance providers available to protect potential IR35 contractors against investigations and penalties, although the insurance can be expensive a contractor grossing £55k a year can save around £8k in tax even after purchasing this.

We have worked with various contractors in and around Northampton to help them with accountancy requirements and to increase their take home pay. Contact us to find out how we could help you.

Nishi Patel

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