HMRC introduced the 'Intermediaries Legislation' that became known as IR35 in 2000 after it was announced in the 1999 Budget.
The legislation was introduced to combat 'disguised employees'. This refers to an individual who would be treated as an employee were it not for the fact that they provide their services via their own personal service company.
Contractors working via limited companies are not liable to pay NICs on income taken as dividends, resulting in far less tax to the Treasury. As a result of this, IR35 exists to ensure that those working in this manner pay the tax they should.
Being 'caught' by IR35 can have serious financial consequences. If the Revenue investigate a contract and decide that it is inside IR35, they will calculate a deemed payment treating all income received from the contract as salary and demanding PAYE tax and national insurance contributions on payments originally paid out as dividends.
HMRC can go back up to six years, so even if a contract is finished there is still a risk that it could be subject to an enquiry.
The tools and guidance provided in this Survival Kit have been constructed by tax and IR35 specialists, led by ex-HMRC inspectors and contract and status experts. It includes key facts, the dreaded HMRC letter, DIY contract review, liability checker, step-by-step IR35 enquiry, common myths, an evidence checklist and what Qdos can do to help.