IR35 is a term used in tax legislation designed to combat tax avoidance by employees and the firms that are hiring them, who supply services via an intermediate company, but would be classed as an employee if an intermediary wasn’t used. These workers are referred to as ‘deemed employees’ by HMRC.

Determining whether you fall within IR35 category is complex and ideally you should seek advice. At VinSam we can help you decide whether you fall in to reaches of IR35. In short IR35 is applied using three main principles, these are known as the ‘tests of employment’. These three principles are control, substitution and mutuality of obligation.

If you have a contract that lies within IR35 the business expenses you can claim are limited. In essence, allowable expenses are the same as a those that can be claimed by a permanent employee. On top of a 5% expense allowance when under IR35, you can also claim business expenses for professional subscriptions, pension contributions and professional indemnity insurance. Other items such as travel cannot be claimed if under IR35. It is also important to note that if you are working inside IR35 for a client in the public sector the 5% allowance is not applicable.

An umbrella company is a separate company that acts as an employer for contractors who are working under fixed contracts. They are used as intermediary between contractors and a client. The primary aim of an umbrella company is to make payment to the contractors a swift and simple process. Whether you need an umbrella company or not depends entirely on the nature of the work you do. At VinSam we can help you make this decision and set up an umbrella company for you.

As a subcontractor you should be aware of the fact that deductions will be taken from your payments and paid to HMRC. These deductions are counted as advanced payments towards the subcontractor’s tax contribution to the national insurance bill.

Subcontractors don’t have to register for CIS, but if they don’t, deductions from their payments are taken at a higher rate by HMRC. Contractors must register for CIS. You must register for CIS as a contractor if you pay subcontractors to do the construction work and if your business does not do construction work but you usually spend more than £1 million a year on construction. You maybe a sole trader, in a partnership or own a limited company.