IR35 rules can potentially apply to any relationship where there is an individual providing services to a company or partnership, which in turn provides these services to a client. The company or partnership is termed the “intermediary” and IR35 is properly called the Intermediaries legislation.
IR35 status
IR35 asks the question: were it not for the limited company, would the individual be self employed or an employee of the client? If the individual would be employed by the client then IR35 applies and creates a tax and national insurance charge similar to the amount payable by ordinary employees.
It is sometimes thought that if you have multiple clients you cannot be caught by IR35 or deemed to be an employee. Although your number of clients can have some impact it will not be conclusive. IR35 or employment status applies to the relationship between you and any particular client. If you operate through a company and have three clients it could be that the relationship with two are not inside IR35 and the third one is.
The main questions to determine your IR35 or employment status are: Do you control the methods of work, rather than the client? Does the relationship allow someone other than you to do the work? Is there a lack of mutual obligation to provide and carry out work? Is there a business being operated (multiple clients, insurance in place etc)? If you can answer yes to these questions then you are probably outside of IR35. It must be remembered that these questions must be answered in real practical terms as well as by reference to any written contract.
IR35 tax
If you are caught by IR35 then your company will have to account for the deemed salary which is sales made less certain very limited expenses and a 5% allowance. This calculation is carried out on a tax year basis (year to 5 April) regardless of your company year end. PAYE and NI (employers and employees) is calculated on the deemed salary and paid to HMRC on 19 April each year. The remainder of the deemed salary, the deemed net pay, can be drawn from the company. There are unlikely to be any profits available for distribution by way of dividend after accounting for the deemed salary.
If you have any questions regarding IR35 then please contact us and we will be happy to help.
