What is IR35 about?
Budget day 1999 news release IR35 announced the Chancellor's intention to tackle tax and NICs avoidance through the use of intermediaries such as service companies or partnerships.
Intermediaries such as service companies can be set up to provide the services of a single worker to a client in circumstances where, if it were not for the service company, the worker would be an employee of the client. The use of service companies in this way allows the client to make payments to the company rather than the individual, without deducting PAYE or NICs.
The worker can then take the money out of the service company in the form of dividends instead of salary. Dividends are not liable to NICs so the worker will pay less in NICs than either a conventional employee or a self-employed person.
The Chancellor believes that avoidance of PAYE and NICs in this way needs to be tackled in the interests of fairness.
On 6 April 2007 Chapter 9 ITEPA 2003, more commonly known as the Managed
Service Company (“MSC”) Legislation, was introduced. The MSC
Legislation applies to individuals providing their services through intermediaries
which meet the definition of a Managed Service Company.
An intermediary must consider whether the MSC Legislation applies before
considering IR35. Intermediaries that do not meet the definition of an MSC
must continue to consider IR35.
Additional information about the MSC
Legislation can be accessed via this link.
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