View more on these topics

Self-employed versus employed

Indeed, a business is no longer able to employ a supposed contractor with a view to avoiding liability for the employer’s National Insurance and tax contributions. The law was tightened up considerably in April 2000 when new legislation called IR35 was introduced.

The new rules were specifically brought in to combat problems within the building industry. The Inland Revenue and the government believed that too many building contractors were claiming self-employed status. The reality of the situation however, according to the Inland Revenue, was that these people were in fact working in such a way that they simply could not be deemed to be self-employed.

IR35 was therefore brought in to cover those contractors who did not meet the Inland Revenue’s definition of ‘self-employed’.

So, what are the rules of IR35?

IR35 applies to those contractors who work through via a service company. These contractors, but for the existence of their service companies, would be deemed to be employees of the client for whom they are providing their services. Contractors who fall under the provisions of IR35 will be expected to pay tax under Schedule E together with National Insurance contributions. Expenses will be deducted from revenue earned alongside tax and National Insurance. The balance is then paid out to the contractor through the contractor’s service company. This income is called the ‘deemed payment’.

What are the consequences of IR35?

It is vitally important for employers to realise that the rules used to determine whether a contractor falls within the scope of IR35 are the same as or similar to those rules used to determine whether someone is self-employed or an employee.

This can be critical when it comes to employment legislation. For example, a contractor who is genuinely self-employed cannot bring a claim of unfair dismissal. An employee, on the other hand, can. If an employer has a contractor working under IR35 there may be some argument to suggest that the contractor is not genuinely self-employed and may therefore be entitled to protection under existing employment legislation.

Next week I’ll be looking at what employers should be wary of.

Recommended

AMI voices concern over KFIs

The trade body is worried the rules covering the calculation of inducements could be misinterpreted, particularly the definition of what payments are regarded as material and must be disclosed. It states confusion also reigns over the issue of packager payments. Current thinking suggests packagers are out-sourced processors of mortgage cases, working for either a lender […]

CCJ enforcement method unveiled

A consultation paper, Civil warrant performance indicators – information for customers, asks for comments on the proposals. It also looks at information that would be useful to customers on the County Courts that enforce judgements. The paper suggests a new method for evaluating how effectively warrants are executed by the courts. It is proposed that […]

Scheme to assist in money transfers abroad

Currently offered exclusively to clients of Hove-based CFS, the UK&#39s leading overseas mortgage broker, the scheme has been launched in response to the needs of Britons moving abroad or buying property for investment or personal use. Many such buyers are finding that the size and regularity of money transfers between the UK and overseas, for […]

Market Harborough makes it easy for family to help FTBs

Currently most lenders require a relative acting as a guarantor for a young person&#39s mortgage to guarantee the full amount of the mortgage. By contrast, Market Harborough will ask guarantors to cover only a portion of the mortgage. As a practical example, Mr Smith earns £20,000 and wants to buy a house at £110,000 and […]