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What is IR35?

4 characters that strike fear into the heart of many start-up contractors but it needn't have to...

IR35 was introduced in 2000 to try and avoid employees masquerading as contractors to receive the tax advantages available. 

The financial ramifications can be significant if you fall foul of the IR35 legislation so it's important that you understand how this works. 

There are two key words in relation to IR35 "Inside" and "Outside". 

Outside - This is the ideal scenario for a contractor operating through their own limited company. This will entitle you to operate in the most tax efficient manner possible. 

Inside - If you are deemed to be inside of IR35, you will be taxed as if you were a PAYE employee (minus nominal expenses allowance). This does not rule out working through your own limited company, there are still advantages of working in this way. 

Remember that it is not the company that is trading inside/ outside of IR35 but each contract the company undertakes, it may be the case that you have contracts both inside and outside of IR35 in the same year. 

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