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IR35 is a code of practice refers to the rules 'countering avoidance in the provision of personal services'. It has long been cheaper for a business to use self-employed subcontractors that is the contract workers, rather than employees: there is no employer National Insurance (NI) cost, no pension contribution cost, no payroll compliance cost, and fewer obligations under employment protection law. IR35 was the Inland Revenue's answer to the allegedly growing use for tax and National Insurance cost avoidance of personal service businesses (PSB). IR35, put simply, requires the PSB to treat itself as an employer paying out as remuneration most of the income it receives from the client, even if in fact the profit is extracted by way of dividend. This effectively negates many of the tax and NI advantages of using the PSB, as well as imposing extra administration, while leaving the worker's legal status unchanged.
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