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What is IR35 legislation?

Ensuring your business adheres to all the tax and National Insurance regulations it needs to is important. Sticking to the rules can help avoid problems during a tax investigation and prevent your company running afoul of HMRC.

IR35 is one such area of legislation where rules should be followed. We explain what it is and how it can impact on your business.

What is IR35 legislation?

How does IR35 apply to a business?

IR35 applies to your business if you are contracted to work for someone through an intermediary. This is often referred to as ‘intermediaries legislation’ and outlines the rules for tax and National Insurance contribution when working via an intermediary.

The rules are in place to ensure that the right amounts of tax and National Insurance are paid on the behalf of the contractor, by the intermediary.

IR35 defines an intermediary as:

  • Your own limited company – important to note if your business contracts others to complete work on your behalf
  • A service or personal service company
  • A partnership

These rules are also enforced when working through an intermediary in other areas, including:

  • Abroad
  • In construction
  • With a spouse or partner
  • Working for a charity

What happens if I violate ir35?

The responsibility for maintaining compliance with IR35 lies with the intermediary. If you are a partner in a company or a director of a limited company, it is your responsibility to ensure you disclose any instances of where IR35 needs to be applied to HMRC.

Failing to disclose any instances where IR35 would be applicable can lead to a number of problems, including:

  • Fines
  • Backdating extra tax and National Insurance contributions – with interest
  • Penalties

These charges and costs can grow in severity over time and can be worse if HMRC is able to prove that you ignored IR35 legislation deliberately.

How can FSB help during a tax investigation?

FSB offers its members automatic access to tax investigation advice and insurance – which helps to protect you and your business, should you be investigated by HMRC.

The service provides members with advice and guidance to ensure they are IR35 compliant.

Other benefits include:

  • Cover up to £100,000 per individual claim
  • Representation from former tax investigators who will liaise with your accountant
  • Tax advice helpline
  • Tax investigation insurance – covering any accountant fees agreed within the policy

To learn more about tax investigation, or how our tax investigation protection service can help your business, visit the FSB Tax Investigation Protection page or contact a member of our team.

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