Prior to the introduction of IR35, an individual could avoid being taxed as an employee on payments for services and paying Class 1 NIC by providing those services through an intermediary (limited company). The worker could take the money out of the intermediary, normally a Personal Service Company, in the form of dividends instead of salary, resulting in significant tax savings.
The legislation ensures that, if the relationship between the worker and the client would have been one of employment, had it not been for an intermediary, the worker pays tax and NICs on a basis broadly equal to that an employee of the client would pay.
As a director, it is your responsibility to ensure that your IR35 status is always clear. The IR35 legislation is applied on an assignment-by-assignment basis, and applies to anyone supplying their services through a Limited Company.
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