The IR35 Legislation was introduced in 2000. It was designed to counter the practice of workers using a service company to extract remuneration in a tax effective way, when the relationship of the worker to the user of his/her services would be that of an employee - was it not for the service company being used.
| Generally it is more efficient for the owner of a limited company to extract remuneration through a small salary and dividends. This saves on the payment of National Insurance and leaves the owner with a greater net figure than if he was having PAYE & NI deducted.
Although the legislation was introduced primarily against workers in the IT business, it must always be borne in mind that all workers who use a service company have the potential to be caught. |
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HM Revenue and Customs will look at the working relationship between the end user and the service provider from a number of angles for example the degree of control the end user has, and the financial risk the provider has i.e. is he paid by the hour/day or on a fixed price for a specific task.
There are many other factors which comprise evidence or otherwise of being deemed a service company, but importantly, each case is considered on its own merits should HM Revenue & Customs challenge the company status.
If a company is deemed to be a service provider, then the remuneration is worked out by deducting a fixed amount of expenses from the turnover, then any expenses that would have been allowable as an employee. The resulting figure is then deemed to be gross pay plus employers NI. The PAYE and NI for the tax year have to be paid by the 19th April after the tax year.
It is not always obvious whether a service company will be caught by the IR35 legislation and professional help should always be sought to avoid significant problems.
Call TaxAssist Accountants now on 0800 0523 555 or fill out our contact form and we will call you back.
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