IR35, what does it mean for you?
If your contract has the same level of risk, responsibility, liability and control as a permanent employee, then you would be classed as inside or caught by IR35 legislation. This means you will have to pay full tax and full National Insurance (instead of the usual salary and dividends from the profits of your company) and reduced expenses i.e. you'll earn less money.
If you are caught by IR35 is there any benefit in trading through my own limited company?
If working inside IR35, you would need to pay full income tax and National Insurance on your entire salary.
At the end of the tax year, you will need to work out your ‘deemed payment’. Put simply this is your turnover, minus your 5% allowance for the running costs of the company.
If you have any allowable expenses, these would be deducted before turnover is calculated.
There are many factors to consider that vary from contractor to contractor, such as:
1. If you expense the whole 5% tax relief for operating costs. (If you choose not to, you will be liable for a small amount of corporation tax on the difference.)
2. If you have a pension and how much you pay into it
3. Expenses that you have incurred to carry out your contract, such as travel costs.
In short, this will depend on your outgoings and other factors, including the flexibility afforded to those who are contractors rather than permanent staff when they wish change roles/companies.
There are several ways of trying to avoid falling into the IR35 remit and this is something we can help you with at Geoffrey Nathan.