IR35, Limited Companies and HMRC.

It’s that rare time of the year where we pop on our boffin hats here at QLS. We try to avoid it at all costs, but sometimes we can actually be quite clever (honest). The reason for the dusting off of our clever-clogs cap is that we need to have a bit of a talk about IR35 and this idea of ‘paying less tax.’

Now, we’re sure all of our lovely locums would never dream of doing such a thing, but it would seem that some locums are setting themselves up as limited companies. Now, even with our boffin hats we’re not fully understanding of all the legislation, so we’d definitely recommend that you have a quick Google search for yourself if you want a more comprehensive understanding.

That being said, we understand the principle, mostly because a friend of ours explained it to us in a pretty handy metaphor. If you told kids they each time they got 100 pieces of Lego they had to give 20 pieces to their younger siblings, they’d (begrudgingly) do so, ‘cause that’s the law and you’re an adult! However, if you had a rule that kids who sat down quietly only had to give 15 pieces to their younger sibling… well, you’d be surprised how many kids started sitting down.

Unfortunately, HMRC have made it quite clear that sitting down politely (handy metaphor for working as a limited company) just to gain more Lego bricks is actually a bit (very) illegal, and are now investigating kids who have done this. We’re not sure about you, but that all seems very clear to us now.

The exact bit of legislation HMRC are using to investigate this Lego brick scandal is called IR35, and you can read more about it here. If you provide services to an employer through a third party, such as an agency, then agency legislation may apply. You can read about agency legislation in more depth here.

Whilst this may be quite difficult to get your head around, it’s important that we all make the best effort possible to understand it. Even if you think the legislation doesn’t concern you, it’s always better being safe than sorry. If only HMRC employed metaphors involving Lego bricks, then we’d all understand!

Here at QLS we believe in looking after our team, that’s why we got in touch with our friends at the UK’s premier PAYE Umbrella Service, Asset Services. They told us a little bit more about IR35.

“In short, IR35 was introduced to deal with employees who were disguising themselves as limited companies, who may have been using the regulation in order to avoid being taxed like any other employee. IR35 basically dictates that an employee’s salary should be subject to PAYE and NI, and failure to account for these could result in severe punishments. The result of IR35, is that a great deal of the people who had previously exploited the legislation are now using PAYE companies such as ourselves.”

So there you have it, a brief overview of IR35 and why it really is incredibly important that employees do everything possible to ensure their accounts are fully compliant. If you’d like any further information regarding IR35, and if the legislation affects you, you can get in touch with Asset Services on 08444 170 100, or you can always use Google! It really is important that you as a candidate understand what it means to be set up as a limited company. Don’t say we don’t look after you!