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Sole Traders and IR35

What is IR35?

IR35 is a legislation, which was brought in by the government in April 2000 to ensure that those who are in “disguised employment” are paying the correct amount of tax.

An example of someone who is in disguised employment or inside IR35 would be a permanent employee who was to leave their job on a Friday and then return to the same company the following Monday to do exactly the same job, but on a self-employed basis rather than as a permanent employee. An individual in this situation is deemed to be inside IR35 because they are effectively in the same position as they were before, but receiving the tax benefits available to self-employed workers, without taking any of the risks associated with working in this way.

Does IR35 affect sole traders?

If you are a sole trader then you will be relieved to know that IR35 will not affect you as it is only applicable to limited company directors. However, if a sole trader works for a client on a contract basis in a way in which could be deemed disguised employment, then the end client is at risk of being considered the employer and being held responsible for the individual working inside IR35. In this situation the client would be liable for the unpaid PAYE, National Insurance and Employers National Insurance, not the sole trader. As a result contractors very rarely work as sole traders because companies generally do not want to take this risk and many will stipulate that they will only employ limited company owners.

Recruitment agencies will also not risk being classed as the employer of a sole trader contracting inside IR35. Agencies require a company to act as an intermediary between them and the contractor. This company will either be the contractor’s limited company, which is seen as a separate entity to the individual contractor, or an umbrella company which acts as the contractor’s employer.   

How will IR35 affect me?

As mentioned previously, IR35 is not a consideration for sole traders. If you are self-employed and working through your own limited company for numerous clients on multiple different projects then it will be very unlikely that you will be affected by IR35 either.

However, self-employed individuals who are working through a limited company for just one client, in a role that has the same level of risk, responsibility, control, substitution and obligation as a permanent employee could be inside IR35. If you find yourself in this situation then you will have to pay full tax and national insurance contributions (instead of receiving your salary and dividends from your company profits) and will not be able to claim the same amount of expenses. This is the case because you are not deemed by HM Revenue and Customs as taking the financial risks or having the same level of company control as limited company directors and therefore you are not entitled to the same tax benefits.  

Are you worried that you may be working inside IR35? For more information or to ask a question about your situation, please get in contact with Easy Accountancy on 0500 234111/01442 275767 or email lovely@easyaccountancy.co.uk for a free verbal IR35 review. 

Why Clients Choose Easy Accountancy

Easy Accountancy offers a low cost, fixed fee accountancy package with all clients receiving their own dedicated, friendly, approachable accountant.

All of our accountants specialise in providing accountancy services to the self-employed, freelancers, sole traders, small to medium sized limited companies and private individuals. All accountants are employees of Easy Accountancy and we never outsource or offshore work.

Our low cost, all-inclusive fixed-fee accountancy service includes unlimited access to your own dedicated accountant throughout the year and covers all your business and personal tax affairs needs.

All our accountancy services include:
  - Unlimited access to your accountant
  - Ongoing advice on how to manage your business
  - Proactive tax advice throughout the year
  - Updates and reminders so you'll never miss a deadline
  - Free bookkeeping software

As a sole trader our fees start at just £60 + VAT a month, for this you receive the above plus:
  - Completion of your Self-Assessment tax return
  - Advice on how much Income Tax to pay
  - Guidance on National Insurance contributions

As a limited company our fixed fee packages are bespoke to your needs, however typically you’ll receive the above, plus:
  - Completion of your year end accounts*
  - Completion and submission of your annual return Companies House
  - The director/s Self Assessment tax return
  - Payroll bureau
  - Dividends and corporation tax computations

We’ve saved our clients up to half on their accountancy bills – if you’d like a quote, click on the quote me button to the right of this page. Alternatively, call us on 01442 275767 or email heather@easyaccountancy.co.uk.

*If you would like us to complete your company year end accounts we simply ask that you have been a client of Easy Accountancy for one year or have made 12 monthly payments.