May 10, 201214 yr Hi guys, wanted to talk to UK people here about the ir35 rules and how they really work for contractors whether you're full time or just doing a little bit of extra work on the side while being employed full time. I was going to make the leap to freelance, but I'm currently sitting tight in my day job while doing extra work on the side. Obviously, I'm supposed to declare these extra earnings to the tax man. But apparently if I do, I fall in ir35 and my extra earnings get taxed to oblivion. This is how I see it from what I've read: If you're full-time self employed, you work outside of ir35 If you're an employee and do some contract work on the side, this extra work falls within ir35 Is this right? Is it that cut and dry? Or does ir35 only kick in when you start earning a certain amount? I'm just concerned about getting stung further down the line if I don't declare anything and get caught out some how, which is why I'm asking.
May 11, 201214 yr Hi guys, wanted to talk to UK people here about the ir35 rules and how they really work for contractors whether you're full time or just doing a little bit of extra work on the side while being employed full time. I was going to make the leap to freelance, but I'm currently sitting tight in my day job while doing extra work on the side. Obviously, I'm supposed to declare these extra earnings to the tax man. But apparently if I do, I fall in ir35 and my extra earnings get taxed to oblivion. This is how I see it from what I've read: If you're full-time self employed, you work outside of ir35 If you're an employee and do some contract work on the side, this extra work falls within ir35 Is this right? Is it that cut and dry? Or does ir35 only kick in when you start earning a certain amount? I'm just concerned about getting stung further down the line if I don't declare anything and get caught out some how, which is why I'm asking. It is all very confusing. I should be able to help clear some of the points up though. Basically all IR35 is there for is to stop people from using a LTD company as a tax avoidance tool when really they may as well be permanent employees to whoever they are working for. For example, some long term (6 months +) contracts for corporate companies as an IT professional require the consultant to work 9-5, never from home and using the company's equipment. In the eye's of HMRC they could use those points to judge that contractor is acting the same as a permanent employee and class them as inside IR35 for all offending contracts - and recalculating all tax paid as Paye and NI rather than dividend/minimum salary. It's a pretty massive difference for most IT contractors. IR35 status isn't slapped on you as a whole, it's on each individual contract. Full time employment which you are paid a salary and pay PaYe and Ni contributions never come under ir35 because you are already classed as employed and are paying the maximum tax that HMRC can get from you for that employment anyway. It only applies to LTD Company contractors. In your case, doing some freelance work on the side is absolutely fine. You can either set yourself up as self-employed and declare your freelance work through that (self-assessment tax returns etc) or as a LTD company. a LTD company will require more setting up and admin but you can pay less tax if you play it right. Either way you'll be wanting an accountant or you can learn how to do it all yourself. From what you've said there's no way IR35 is at all relevant to your employments or freelancing. Most likely you will be freelancing from home working for several clients on short term projects, meaning you have a lot of control of your hours, equipment used, fees charged etc. You wouldn't be able to get inside IR35 if you tried! It's also worth noting that the Conservatives once suggesting axing it as part of their campaign, and in march 2011 the treasury put in a request to shut the policy down as it wasn't earning them any money and was a pain in the arse as it was hard for them to get any big money out of it. Although it might still be going on the risk of being investigated and being caught inside is pretty low. It will only be the guys taking maximum p*** that will get screwed in the end. Also, although it's technically wrong, i'd weigh up how much you're actually going to make on the freelancing side. If it's only a couple thousand a year you may be better off trying to take cash or exchange favours. Don't tell HMRC I told you though!
May 12, 201214 yr Contractor here. Ignore IR35, as jack said above you only need to worry about it if you set up as a LTD company and only have 1 main stream of income. It wont effect you if you set up as a sole trader (you can be a Sole Trader and Full Time PAYE employee). You just need to declare your earnings via self assessment, and they will calculate your deductions at your tax bracket 20/40/50% e.g if you're in 20% bracket... PAYE Pay £20,000.00 + Sole Trader earnings £5,000.00 - Tax £3,505.00 - NI £2,132.64 = £19362.36 Not bad vs the £15962.36 you would earn without the extra 5K freelance income. Your sole trader income is entitled to tax deductible expenses/loss too.
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