Latest IR35 saga!

July 26, 2016

HMRC launched a consultation in May this year proposing a change to legislation called IR35.

What is IR35?

IR35 is relevant for individuals, usually operating their own limited company (“personal service companies”) offering their services through an agency to an end client.

If the individual is caught by IR35 legislation, all earnings are effectively taxed as employment income through PAYE.

This means personal service companies cannot take advantage of tax minimising strategies such as paying a tax efficient salary and extracting income by way of dividend (however refer to recent article on  the new dividend tax

What is HMRC trying to change?

The change discussed in the HMRC consultation document is that agencies themselves rather than the personal service companies themselves need to decide if IR35 applies.

Who does it apply to?

The consultation is currently restricted to public sector workers, but it is highly likely that the rules will be extended to all individuals.

For a review of the  consultation document, click here

If you would like to talk more about how the changes to dividend tax might affect your  company,  please call or drop me an email.