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IR35 came into effect 6th April 2000. Its aim is to tax contract
workers who the government felt were avoiding paying sufficient tax, ie.
contractors who declared themselves self-employed while working for just one
organisation. Those who fall under IR35 are liable to pay Schedule E and
National Insurance after the deduction of expenses Many contract companies generally have a mixture of IR35 and non-IR35
taxable income. Income that does not fall under normal contracts is not IR35
taxable. Employed or self employed?IR35 will only come
into force in cases where the contractor is deemed 'employed'. It affects
people who would have been given contracts of employment if they had worked
directly for a company, rather than having gone through an intermediary such as
a service company or a partnership.If you think that you are 'self-employed' and feel that you do not
fall under the new regulations it is a good idea to diversify your work.
However it may be safer to assume that you are affected and to seek advice
either from an accountant or the Inland Revenue, which has a service where you
can send them your contract and they will tell you whether you fall into the
IR35 net or not. Dealing with IR35Most contractors are worried
about being taxed as an employee but missing out on all the normal perks such
as paid holiday and sickness benefits. Normally their income would have been
sufficient to compensate for this lack of benefit but now there will be a
noticeable difference in their end of year income.One way to get over this is to increase rates. Financial advisers
recommend that contracts should charge some 15%-25% extra to cover the short
fall in income. This is going to become common, so if your contract is up for
renewal you could ask for an increase in payment. Another way to save money is to organise your expenses, so that you
are claiming back as much as possible. The government conceded to give
contractors a 5% expenses provision, so make sure you use it. Eligible claims
are: - accounting fees
- computer equipment
- company secretary salary
- postage & stationery
- training costs
- computer equipment depreciation
- employer and public liability insurance
Contractors are still liable to pay Schedule E income tax, and
therefore retain all the normal tax relief including: - pension payments
- business travel
- subsistence
- professional indemnity cover
- benefits in kind
Also, if you are registered to pay VAT (as long as you have minimum
turnover of
({@denom})52,000); you can still claim back
17.5% on any computer equipment. It is important to plan any expenses in
advance taking all these things into consideration, such as buying software to
avoid paying the 40% tax on the rest of expenses that exceed the stated 5%.
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