IR35 For IT Contractors
IR35 is piece of tax law aimed at contractors. Its aim is to distinguish people who are genuinely self-employed – with all the risk and independence it entails – from people who set themselves up as contractors purely for tax purposes.
As an IT contractor, your contract may fall within the qualifying criteria of IR35. If so, you’ll still be able operate as you are, but HMRC will tax you as if you are an employee on PAYE.
Obviously, you’ll want to avoid IR35. At Boox, because we specialise in working with contractors, our accountants are experts in this field. We’ll review your contracts and working practices and give you specialist advice.
[download the guide, IR35]
How IR35 works
It’s up to you to evaluate your contracts and make a declaration on your Annual Employer Return form P35 if you think your contracts fall within IR35. To avoid it, you’ll need to be able to show you are independent of your clients. Criteria for establishing this include whether you operate from your own premises, hire staff at your own expense and incur promotional costs.
If you have a contract that falls within IR35, HMRC disregards your business status for tax purposes. Whether you’re a sole trader, an owner of a Limited Company or work through an umbrella company, your tax and National Insurance bill will be same. It will be what you would have paid as an employee of your client. You’ll also be unable to claim daily travel or subsistence expenses if you’re within IR35.
Altogether, this could leave you up to 20 per cent worse off than if you met the HMRC self-employed criteria.
However, you can claim 5 per cent of your contract value for administration costs. You can also claim expenses for travel and accommodation for work away from your client’s site, pension contributions and professional subscriptions.