IR35 in the UK

Overview

'IR35' is the name given to the new legislation introduced with effect from 6 April 2000 by the UK Inland Revenue to counter tax and national insurance avoidance by contractors working through their own service companies.

"The new rules are intended to apply to engagements where:

1. a worker provides services under a contract between a client and his/her own service company; and
2. but for the presence of his/her service company the income arising would have been treated as coming from an office or employment held by the worker under the existing rules used to determine the boundary between employment and self employment income for tax and national insurance purposes, if the worker had contracted directly with the client."
   -UK Inland Revenue

Are you a contractor in the UK operating through your own service company?

Are you unsure what your new tax status is now that the IR35 legislation has been implemented in the UK?

If your answer is "yes" to both of these questions, and you would like further clarification of the options available to you under the new rules, then O'Mahony Donnelly can offer advice on a suitable Financial Strategy for your business under the new regulations.

How to Determine Your Tax Status

Your Options

1. Accept that the proposals apply to your company. This will cost you in the region of 15-25% of your gross fee income -- a significant drop in your take home pay! You will also be responsible for identifying those contracts that fall within the proposals and termed 'relevant engagements' and then work out how much tax and nic to pay on your 'deemed salary' and pay this over to the collector of taxes by 19 April following the tax year end. We can review your existing or proposed contracts and advise on which ones fall under the IR35 proposals and the likely increase in your tax bill as a result.

2. Argue that the proposals do not apply to your company. You may be asked to prove that you would be genuinely self employed if you were engaged directly with your client rather than through your company. We can review and rewrite any contract for services between your company and its client(s) to ensure that it is "IR35 proof" and reflects your real situation as an independent business person.

3. Work directly as an employee. This may involve a significant drop in after tax income. We can assist to determine the salary to negotiate in order to maintain the after tax income you desire.

4. Work overseas. We can offer help and advice on your obligations to file UK tax returns. Should you decide to work in Ireland, we can assist with your Irish tax obligations, as well.

5. Set up and work for an Irish registered company which could contract in Ireland and the UK. In Ireland there is no comparable legislation to the IR35 rules. We can set up your Irish registered company, plan and oversee your whole financial strategy and administration.

6. A combination of 2 and 5 above to more fully ensure your tax status.