IR35 legislation should be considered by all contractors working through their own company. It is specifically designed to affect individuals who are deemed to be “disguised employees”, contractors who are treated and act as permanent staff, i.e. not fully self-employed. The legislation requires these individuals to pay tax and NI on 95% of the assignment income, after the deduction of direct costs. Individuals deemed to be outside of IR35 (i.e. not disguised employees) have the option to pay a dividend and avoid NI contributions.
IR35 works on a contract by contract basis, so if one assignment fails that does not necessarily mean all future work will also fail. Numerous factors need to be taken into account when considering IR35 status, such as:
- Autonomy and control over work methods and processes
- No mutuality of obligation, i.e. defined project with no future obligation from either party
- Ability to substitute, sub-contract, or reassign the project
- Exposure to financial risks
- Provision of own equipment and being in business in your own right