Here in this article, we will elaborate further about Ir35 and its application to sole traders. Read on to know more in detail.
What is Ir35?
IR35 is a set of rules under the UK tax legislation that recognizes the difference between a self-employed person as a businessman or a disguised employee. It helps the government identify the businessmen evading from paying the appropriate tax by working as ‘disguised’ employees or are keeping their workers on a self-employed basis to ‘disguise’ their actual employment position.
Does Ir35 Apply To Sole Traders
IR35 (The Intermediaries Legislation) was introduced to stop workers who started setting up limited companies to cut off their major contribution to income tax and National Insurance liabilities. Doing this, they got a chance to continue work as’ employees’ for their clients and save themselves from taxation.
No, IR35 does not relate to sole traders as sole traders work as employees for their end clients. However, the rule IR35 applies to people who work through their own intermediary, usually a ‘Personal Service Company (PSC) – a limited company set up by an individual with which they provide services to their clients.
So if you are beginning as a freelancer, ensure that you go through the rules and regulations of Ir35 as you will have to face them in due time. IR35 impacts freelancers and contractors who are working through an intermediary in which they own more than 5%; their own limited company.
Then is there something as Ir35 for Sole Traders?
Yes, the Agency Legislation is a concept introduced in 2014 of which the rules are equal to that of IR35, but the assessment criteria are simpler.
Suppose that you are a sole trader who works under the Supervision, Direction, or Control of the client; they are considered your employee for tax purposes, with the agency responsible for deducting the appropriate tax and NICs. And suppose that you’re a sole trader who works directly with clients, agency legislation rules won’t impact you.
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