IR35 is a piece of government legislation designed to put an end to Tax and National Insurance Contributions (NICs) avoidance by using intermediaries such as service companies (Limited or Personal) or partnerships. Generally speaking, IR35 affects all contractors who do not meet HMRC’s definition of ‘self employment’.
Previously, companies could be set up to provide workers to client organisations. This enabled the client to make payments to the company without deducting PAYE or NICs. The worker was then paid in the form of dividends, rather than a salary, thereby saving on NICs.
On 9th March 1999, the Inland Revenue issued a bulletin, IR35, which detailed how they intended closing the loophole that allowed contractors to avoid paying significant amounts of tax and NICs by using personal service companies. The government saw all UK contractors as being potential ‘tax avoiders’, due to the tax saving benefits they enjoyed by operating as Limited and Personal Service Companies, whilst their underlying status was clearly that of a deemed employee. IR35 was formally introduced in April 2000.
Are you confident your current payment solution can stand the test of a HMRC investigation? If you are not sure give us a call today on 01536 659064 and we will explain these things in simple terms so that you can gain a good and clear understanding.
Fines and penalties
Where you have operated a limited company and use a dividend method of payment without proving you can do so legally; fines by HM Revenue & Customs can be imminent. Thus if you have not paid PAYE and NIC you may be asked to pay these amounts with interest. Depending with the level of income you have earned, this could potentially results in huge fines.
The main advantage of using SRM Payroll is that you are not dragged into the technicalities of IR35. The way we deal with your salary under HMRC’s PAYE guidelines means that IR35 does not affect any contractor who uses SRM Payroll as their payment solution. SRM Payroll will give you the peace of mind you deserve knowing that you have nothing to worry about failing to meet HMRC requirements which might lead you into serious problems. We want you to concentrate on you your work as we take care of your payroll issues.