IR35 was introduced on 06 April 2000, in response to a growing trend of people leaving their jobs and registering as self-employed, before being hired by the same company they just left on a long-term basis – often doing exactly same job they did prior to registering themselves as self-employed. By registering as a Limited Company, they were able to reduce their Income Tax and National Insurance bills.

However, because these individuals were in effect being directly employed by the companies they were working for, the government‟s view was that they were not entitled to the tax advantages that they were receiving, and the IR35 regulations were introduced.

If the Inland Revenue decides they will calculate what is known as a 'deemed payment', treating all income as salary and asking for Income Tax and National Insurance contributions on income originally paid out as dividends. IR35 works by taxing the profits of the Limited Company as income, and by requiring the company to pay National Insurance contributions.


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