Don’t Lose Your Pay Over IR35!

How to Comply with the IR35 Legislation

Many contractors understand the threat and potential hazards of falling within IR35, but many do not understand the possible financial impacts of the IR35 legislation.

If a contractor falls under the IR35 legislation, then all of the income earned for a contract would be classed by the HMRC as a ‘deemed salary’. This basically means that income tax and National Insurance Contributions (NIC) would be taken, in other words, treating the contractor as an employee when it comes to tax deductions. To put it into a bit more perspective, if a contractor fell inside the IR35 legislation, they would be expected to receive up to 25% less pay than another contractor who wasn’t. This is because they would have to pay far more tax and NIC than another contractor, making their ‘take home pay’ far less.

This potential financial loss may sound insignificant, but can be crippling to a contractor, and would be frustrating when this misfortune can be easily avoided.

The whole concept is based on the HM Revenue and Customs search for ‘disguised employees’ which is a term given to those so called ‘contractors’ who may well be actual employees but making themselves exempt from as much tax by posing as contractors.

IR35 is a legislation that can be avoided and taken care of by looking into proper contract assessments and purchasing the correct insurance. Tax Liability Cover (TLC35) is a policy favoured largely by contractors regarding IR35 as it is a policy that covers the purchaser with everything that comes with enquires and queries from the HMRC. Contractors are also advised to look into Tax Enquiry Insurance (TEI) and FO35 protection cover as alternatives to the TLC policy as they provide similar cover regarding IR35 enquires.

The point behind this is that contractors should not have to fall under the same tax boundaries as employees, and by keeping on top of their IR35 status, can avoid huge financial losses, much more than the price of IR35 insurance.

By:Steven Bailey

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