What is IR35?
So, IR35 let be honest before we start, it’s not new, it hasn’t really changed since its inception in April 2000, and most of the time HMRC loses cases due to the fact proving an employment relationship exists in a contract assignment is, well very difficult!
Now, if you work in recruitment, UK umbrella industry, use LinkedIn or are in fact a contractor operating through your own Personal Service Company (PSC) then you are probably tracking whats happening in the private sector regarding IR35. It’s a big change but let’s step back and look at what IR35 is and then look at what the changes mean.
Right, what is IR35? IR35 is a piece of legislation which the Treasury introduced back in April 2000. This was a response to common tax loophole named “the Friday to Monday scenarios”. Essentially the authorities had noticed that employees were finishing a permanent role then returning to the same employer as a PSC contractor which allowed them to benefit from a more favourable tax rate. Back then, the difference was around 20% more income.
This practice had to be halted as HMRC were losing out on valuable tax revenue. Thus was born the “Intermediary legislation”(IR35). This new law was introduced to set strict guidelines on who can operate as a PSC contractor in the UK and who is, in fact, a disguised employee (tax avoider!). The legislation set out to assess if the PSC Contractor was working as an independent resource contracted for a specific role or acting as an employee. The table displays how may investigations HMRC has conducted since 2002 and the total review recovered each year.