IR35 was invented to attempt to clamp down on the widespread use of personal service companies by individuals who would ordinarily be classed as 'employees' according to their work practices. You need to be aware of this legislation if you operate through a limited (or personal service) company, as a sole trader or through a partnership. If you operate through an umbrella company, you are effectively an employee paying PAYE so IR35 is not a concern.
It is highly advisable to have an IR35 review by a specialist before you commence each new contract or form a personal service company. Both your contract wording and working practices should demonstrate that you are 'self-employed' in order to escape IR35. Ideally, to maximise your take home pay, you want to be deemed outside IR35. However, this requires careful management and planning to ensure your services are provided on the right basis. It may be possible for an individual to work on several contracts during a given period of time, and for just some contracts to fall within the IR35 net.
If you are deemed employed, you are inside IR35 and subject to higher tax as the aim of the IR35 rules is to tax ‘disguised employment’ at a similar rate to employment. The aim was to ensure that individuals did not leave permanent jobs only to continue working in a similar way, but via their own limited companies to save tax and national insurance. Many contractors caught by the rules join umbrella companies for a hassle-free way to contract.
Feel free to contact us to discuss the IR35 issues further or request a quick or full contract review.