Regulations

IR35/IR591
On Budget day 1999 the Chancellor (Gordon Brown) introduced his intention’s to tackle Tax (PAYE) and National Insurance Contribution’s (NIC) avoidance through the use of intermediaries such as service companies or partnerships (IR35). This was further reinforced by the introduction of IR591 in December 2003,which specifically targets payments made as Dividends rather than salary.

Intermediaries such as service companies could 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 allowed the client to make payments to the company rather than the individual, without deducting PAYE or NIC’s. The worker could 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 believed that avoidance of PAYE and NICs in this way needed to be tackled in the interests of fairness and as such introduced both the IR35 and IR591 legislation that meant that a business needed to prove the worker as a self employed entrepreneur rather than a disguised employee. There are a number of factors that the government use is assessing whether a worker falls either inside or outside of the legislation. These include but are not limited to:- risk of contract, the right of substitution, control of how work is carried out, no benefits incl. Holiday, use of own equipment, right to work own hours and choice of premises, whether the work is a deliverable service etc.
Furthermore even if the Contractor was viewed to be a self employed contractor rather than an employee, the IR591 legislation meant they would have to pay a truthful market rate salary to themselves rather than taking a token wage and the rest in dividends

Vertex IT Solutions only offers contracts to workers who operate through Limited Companies of their own or through an umbrella Limited company, and therefore this legislation is very relevant to all our contractors. We are however unable to help the status of any particular assignment or how the Inland Revenue assess your status as this is defined purely on the way that the services are to be provided to the client and the way that the limited company pay the contractor.

The government’s official website to IR35 is www.inlandrevenue.gov.uk/ir35