Acontractorsworld has listed this page to give you an understanding of the IR35 Legislation, and how it may effect you also listed are some of the main questions that have been asked by contractors to our IR35 expert in the IT Q&A section on this site.

We would advise contractors to seek accurate advice from their accountants to make sure about position under the IR35.

The IR35 was made law by the government and reveled in the budget of 1999. IR35 determines whether a individual, who works through a Personal Service Company or certain types of partnership, is taxable under the IR35 system depends initially on whether the I.R sees them to be employed or self-employed. The decision is based on several documents produced by the Inland Revenue. In a nut shell IR35 was introduced to increase the tax paid by contractors.
IR56 :- A simple test to find out whether you are employed or self-employed. This test has been used for many years and has merely been extended to incorporate LTD CO and the relevant partnership arrangements.
IR175 'Supplying Services through a Limited Company or Partnership. This document.

IR35 has been the main topic for contractors for the past year, IR35 affect all contractors who do not meet the criteria of 'self employment', of the Inland Revenue's, IR35 was but into action on the 19th April 2001. The Inland revenue will check all contracts to see if meet the criteria of the IR35.

If you pass the IR35 criteria then you can continue to pay yourself a salary and dividends.

If you fail the IR35 then you then you can no longer receive dividends from the company and would will liable to 8 - 15%reduction in your net income.
To check your contract status visit the Inland Revenues website.

Determine the payment received between 6/04/00 - 5/04/01. Depending on what the contracts status is this will depend on what payments should be made by 19/04/01. If your contract comes under IR35 then payments are seen as salary and therefore PAYE & NIC should be checked and paid on these sums after deduction expenses.

If you are unable to make an accurate assessment by 19/04/2001 of the PAYE & NIC due then the company still needs to make a payment. On your P35 you should clearly inform the I.R that a correct assessment will be made as soon as possible. Keep in mind that accurate payment should be made by the time the P35 is due and Interest will be charged on all sums not received by 19th April and until correct payment is made.

5 April 2002 End of the second tax year

19 April 2002 Deadline for calculating the income by IR35. A provisional payment may be made, 19 April 2002, interest will be charged on any underpaid balance.

19 May 2002 Deadline for filing forms P14 and P35. If payment made on 19 April 2002 included a provisional IR35 payment, you should tell the Inland Revenue this on the P35.

31 January 2003 Final deadline for providing accurate figures and payment of any balance of PAYE tax and NICs. Penalties, in addition to interest, will be charged if any balance of the 2001/02 IR35 payment remains outstanding after 31 January 2003.

If a supplementary P35 is submitted by 31st January of the following year (i.e. for the tax year end 5th April 2001 this needs to be sent by 31st January 2002) with the correct payments then the Inland Revenue will not charge interest for late submissions. However interest will occur on sums which were due on 19th April until they are paid.

The IR35 is an increase in tax and N.I liability , contractors who come under the IR35 law are liable for taxation and N.I at Schedule E level.
Expenses can be claimed under Section 198. There are other expenses that can be claimed as well as the 5% of a contractor's turnover. see PENALTIES

Expenses that can be claimed in addition to the 5% allowance:

Subsistence - accommodating, meals when working away
Business travel - Incurred in Business only.
Pension payments - Executive or Personal
Professional -Indemnity cover
Other Benefits - private medical insurance

Expenses that cannot be claimed in addition to the 5% allowance:

Training expenses