What is IR35?

IR35 is legislation introduced by HMRC in April 2000 to tackle disguised employment.

In a nutshell, IR35 was intended to stop an employee finishing their job on a Friday and then coming back to work on Monday, sitting at the same desk doing the same job, the only difference being they are now an employee of their own limited company and not an employee of the company they were working for on the previous Friday.

These workers were taking none of the risks of a Limited Company contractor but benefiting from the tax advantages of being a director of a limited company. For example, they could benefit from schemes such as the Flat Rate VAT Scheme where you charge 20% VAT to the client but would pay a lower amount back of between 12% to 15% depending on your business type, typically saving are £3,000 to £5,000 a year.

IR35 aims to stop individuals, who are in effect disguised employees of their end client, working through a limited company and benefiting from reduced NI contributions and tax liabilities.

Is my contract inside or outside of IR35?

You would be considered to be inside of IR35 if your relationship with your end client reflects employment. This can be determined by:

  • Control – For example say you are called out to fix a bug in a program. Could you fix it in the way you deem is the correct manner or do you have to follow procedures set out by your employer?
  • Personal Service – Say you’re ill can you send someone in to do your job on your behalf or do you have to personally carry out the work?
  • Mutuality of Obligation – If you wanted to reject a task, are you obliged to take it or do you have a choice. If they can’t offer you work are they required to pay you still.

If your end client has control over you, i.e. you have no choice in the work you accept and have to follow their procedures, you are mostly likely to be seen as being as working inside of IR35. If you do have control over the work you take on and the processes required to complete the work, you would be considered as working outside of IR35.

What happens if my contract is inside IR35?

If your contract is seen to be inside of IR35, you will have your earnings taxed in almost the same way as a PAYE employee. At the end of the tax year, HMRC will require you to do a deemed payment calculation. In simple terms, 95% of companies turnover, will be treated as your deemed salary, and 5% will be set aside for the running costs of the company.

Your deemed salary is the turnover including any flat rate VAT saving, received whilst working inside of IR35 on a particular contract, minus allowable expenses, such as:

  • 5% of turnover allowed for the administration costs of the company including Professional Indemnity Insurance, training and the cost of looking for new contracts
  • Travel, Mileage, Accommodation & Subsistence costs that you would have been able to claim as an employee
  • Childcare
  • Employer Contributions to an approved Pension Scheme
  • Approved Professional Subscriptions.

Once you have worked out these, you will then be left with your “deemed payment”. If the tax and NI already paid on the payments received is less than the total tax due on the deemed payment you will need to pay the difference at the end of the tax year. Don’t worry if this all sounds a little complicated; your accountant will be able to help you.

How can Orange Genie Accountancy help?

Orange Genie works alongside Bauer and Cottrell. Bauer and Cottrell are IR35 specialists who can review not just your contract but importantly will look into the working practices between your end client and you the contractor. They will then be able to tell you if your contract would be seen to be inside or outside or IR35.

If HMRC does decide to review your status, Bauer and Cottrell will support you and put the facts to HMRC; they are yet to lose a case, so you know you would be in safe hands.

To find out more about Bauer and Cottrell or how Orange Genie Accountancy can help you with setting up your limited company, please call 01296 468 185 or email accountancy@orangegenie.com.

Why Orange Genie Accountancy?

Orange Genie Accountancy offers fixed fee accountancy packages to contractors and freelancers. Each client has unlimited access to their own dedicated approachable and friendly accountant. All Orange Genie Accountancy accountants are specialists in the contracting market, so they can give you bespoke, high quality advice.

We will always keep you informed about anything that could affect you and your company. Our relationships with our clients are extremely important to us so we'll be in touch often, whether it be face to face, over the telephone or email.

Our packages start at £75 + VAT a month for an online service. Our most popular package is £120 + VAT a month which provides you with your very own dedicated accountant as well as:

  • Unlimited accountancy support
  • Face to face meetings so we can get to know you and understand your contracting goals
  • Proactive contact
  • Director and employee payroll
  • Annual Return
  • Self-Assessment Return
  • A fully compliant service so you are safe in the knowledge that you are meeting your legal obligations
  • Access to the Freeagent Software, which is updated in real time so you can always see how your business finances are looking

​And much more, includingaccess to wealth management advice, IR35 reviews and pensions planning. 

If you would like to appoint Orange Genie Accountancy as your accountants please either fill out our enquiry form or give one of our friendly expert accountants a call on 01296 468 185 or email accountancy@orangegenie.com

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