Why Ir35 Rules Were Introduced

By Author: Abbey smith
Total Articles: 362
Comment this article

In the UK, it was becoming relatively common practice for employers and employees to attempt to pay less tax. As a general rule, for an employer using a freelancer or contractor for a job is cheaper from a tax and National Insurance point of view. Workers can also pays less tax if they are self-employed contractors, mostly because they can offset some of their tax liabilities using expenses associated with being self employed.

In the 1980s and 90s lots of people realised this, so came to mutually beneficial arrangements. What was happening is that people in full time roles were being offered the work as a contractor or freelancer instead. They were leaving their jobs on a Friday, only to return the next Monday to the same job, but as a contractor. This practice was becoming so widespread that the taxman was losing too much revenue. As a result they tightened up on the rules that assessed whether a person was working as a contractor or was a regular employee. The rules they introduced were called the IR35 rules.

They worked really well and stopped a lot of firms from doing this, but the new rules also gave existing ...
... contractors a real problem. Including, those who were genuine contractors moving from job to job rather than only working for one firm year in year out. Because many contractors sign up for long term contracts lasting at least a year to the taxman they can look like they are permanent employees rather than contractors. Without the proper support and advice they end up paying full tax and not being able to offset any of it against the expenses involved in running their company.

Getting Help to Cope With IR35 Rules

Luckily, there is quite a lot of good advice out there about the IR35 rules and how not to fall foul of them if you are a genuine contractor. By far the best course of action is to employ an accountant who has experience of doing the books for contractors. The best offer the option of you being paid via an umbrella company.

Beever and Struthers are very experienced at ensuring that contractors and freelancers do not fall foul of the IR35 rules.