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IR35 and self employment

IR35 and self employment

Do the provn's of IR35 apply equally to INDIVIDUALS operating under DI self employment who therefore DON'T have a ltd company OR operate within a partnership BUT ; they still have the main thrust of their income through a main "customer"?

Jamie Tipling


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17th Mar 2000 21:17

Clarification to P Edwards reply
A sole trader who in fails the relevant tests and therefore should be an employee of his only or main customer is not entitled to the 5% deduction which will be allowed for workers caught under the IR35 provisions.

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14th Mar 2000 08:56

Individuals are not within IR35
Individuals only come within IR35 if they are employed by a persoanl service company and own 5% or more of the share capital. Partners come within the proposed legislation in certain specified circumstances.

However an individual who is engaged to work for one main contractor faces the same 'status' tests as a director of an IR35 company, who is exempted from the legislation if he can establish that, if he were trading as an individual, he would be classified as self-employed.

Proving self employment if one is working for one contractor only is difficult, but not impossible. The Revenue devotes over 150 paragraphs in the Schedule E Manual to this issue, but one must recognise that its views are opinion and not law. Great play is made of 'badges of trade'.

The main difficulty is that employment and self-employment are not defined in statutory tax law.The result is that numerous cases have gone to the Commissioners and the courts regarding tax, national insurance and employment issues. Some are ancient, some more modern, and all major on different points,with varying importance.

In practical terms one has to judge how important the principle is in a particular case and can the taxpayer and his or her adviser afford to negotiate with the Revenue and possibly go to the Commissioners and the courts ? There is no easy solution.

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By neileg
14th Mar 2000 09:32

Who pays the PAYE
Following on from John Newth's comment, if the 'self employed' contractor is later deemed to be employed, then the employer (the client) is liable to pay the PAYE & NI with no statutory right to recover this from the contractor. The contractor would be entitled to reclaim any Schedule D tax and Class 2/4 NI already paid to the Revenue.

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12th Mar 2000 09:52

IR35 not only for Limited Companies
If you have a main customer you are likely to be deemed an employee of your customer and 95% of your revenue treated as salary ie income tax, Employee NIC and Employer NIC (no ceiling) deducted from your revenue.

Leaving no facility for expenses over and above 5%, no dividend facility, no retained profits ability, no capital investment.

Your fees or invoice values will need to be increased by about 30% to cover this extra tax.

I suggest you consult your accountant who may or may not be up to speed on IR35 or join the Professional Contractors' Group formed to fight IR35.

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