R35 in the UK: Rules 2021. Simple Guide for Businesses

IR35, in simple words, is a law that provides that persons working under the conditions of full-time personnel (based on certain criteria and a contract) could not form and use an LTD company, since this structure (legal entity) gives special tax privileges in general.

As in any country, and in England, without exception, relatively everyone is trying to pay less taxes, but at the same time staying within the law. For this purpose, many employees performing their job duties for companies, in order to have a better tax regime, decided to create companies and began to carry out their professional activities through data, or similar structures. However, this was noticed by the HMRC and called “disguised employment”. As a result, to combat this, the state created the law IR35 (also known as intermediary legislation).

SYSTEM MECHANISM

Before IR35

After IR35

In other words, the state wants to distinguish those who provide their services through entrepreneurial activity honestly from those who try to hide their status as an employee, and thus have more privileged taxation.

RECOGNITION OF OWNER FROM STAFF EMPLOYEE

The recognition process can be very simple, but also too complex, not only for reasons of the peculiarity of the law itself but often due to unclear contractual relationships. Thus, contracts between the two parties play a very important role in determining the status. The main points under consideration are as follows:

BASIC

PREVIOUS SERVICE RELATIONS

RELATIONSHIP CONTRACT

INDEPENDENCE

REPLACEMENT

MUTUAL LIABILITY

REMUNERATION

INTEGRAL PART

PARTY RECOGNITION

Employer of Record Services in 118 Countries