Green Lantern puts compliance with all legislation and taxation guidelines at the top of its list of priorities, never more so than when dealing with those individuals who have personal responsibility for their own businesses. We understand that being a freelance contractor means operating in an enviromnent that can seem like its drowning in legislation and taxation – its our job to make that easy and understandable for the contractor – leaving you to do what you do best – make money out of your contracting.
There are key points of legislation which are important and unique to contracting, and we’ll cover them here.
Please remember that are highly experienced team are always on hand to take time to answer any questions you may have.
IR35 Legislation
Introduced by the government in 1999 this tax legislation aims to capture any contractors who are receiving their wages in a way that is not employment related income, meaning that they pay less taxes, usually via a limited company being paid dividends, which save on National Insurance Contributions. The legislation specifically targets those who are actually ‘disguised employees’ of their client, and therefore should actually be taxed as employees.
It is recognised as being badly drafted, and therefore complex to both understand and enforce. At its core, the primary purpose of IR35 is to determine the relationship between the contractor and the end client, having discarded the limited company and recruitment company.
Being ‘inside IR35’ means that on inspection, the relationship between the individual and the end client is actually one of employment, and therefore, full levels of tax and NIC should be paid at employed levels.
Being ‘outside IR35’ means that the individual is considered not to be an employee of the end client, but actually in business and therefore able to plan their tax, NIC and other finances as they wish.
In practical terms, anyone inside IR35 should be subject to full employment taxes, and it is often their choice to use an umbrella company, which does exactly that. Those outside IR35 often decide to run their own company or become self-employed, and enjoy the financial benefits of doing so.
Working with Green Lantern Accounting Services, you can be certain that our team of experts will assist you with all of this legislation, and we will make what can seem a complex legal environment very simple for you.
Managed Service Company Legislation
In the 2006 Budget Statement the Chancellor announced that it would consult on action to tackle Managed Service Companies (MSCs). Draft legislation was issued in December 2006, and following consultation became law on April 6th 2007.
MSCs are more commonly known as Composite or Managed Limited Companies and they are used by workers to provide their services. The identifier of a company such as these is that the individual concerned is not in business on his own account, and so the company in place is disguising employment income – which the employer should be paying full PAYE and National Insurance Contributions on. The Government had believed for a long time that IR35 legislation was not properly being followed by MSCs and therefore there was a large amount of tax and NI being avoided by the use of dividend payments.
The MSC legislation effectively means that those people working in MSCs will pay tax and national insurance contributions at the same level as other employees barring them from any benefit associated with dividend payment.
A limited company being run by a director in an appropriate way is very important in order to be compliant with this legislation. This means that the director should have sole control of the bank account, and if the director is hiring the services of an accountant they should still remain entirely responsible for decisions relating to payments and all financial aspects.
Really, this is just scratching the surface of the legislation. The most sensible thing for anyone thinking of running their own business through a limited company is to speak to a qualified accountant, and Green Lantern Accounting Services will ensure that you are provided with a full breakdown of the services.
S660 Legislation
Legislation known as Section 660 specifically aims to prevent a high earner from passing their income onto a family member, usually for the purpose of avoiding tax.
As a company owner, an individual can issue shares of their company to anyone they should see fit. All shareholders are entitled to receive dividend income from post-tax profits of the company in the same ratio as the shares owned. Since dividends represent a tax efficient method of withdrawing funds from a company.
If the spouse, or partner, is a director of the company and they play a significant role in the business then their status as a shareholder is of less concern. The shareholder and director who is not the main fee earner should hold a clearly identifiable role in the company to justify earning dividends.