Employment Status - Employed or Self-employed?

I am subject to IR35 rules. Am I an "employee" or a "worker"?
(Prepared on 17 November 2005)

The special "IR35" rules apply in particular to an individual or individuals who set themselves up as a limited company (an "intermediary") and supply themselves to work for clients under a contract between the client and the intermediary. The individuals are, therefore, directors of their companies, not self-employed. The object this legal arrangement is to reduce the amount of income tax and Class 1 National Insurance contributions (NICs) paid by the individual.

Where these circumstances apply, the complex IR35 rules require you, the director, at the end of each tax year, to consider the terms of the contract with each client and decide whether, if the contract had instead been between the client and you personally, the client would have had to have treated you as an employee and put you on the payroll. If so, you are required to treat the payments from the contract, after certain deductions, as earnings that are subject in full to tax and Class 1 NICs. Against these liabilities, you can offset the tax and NICs that you have already paid during the year.

As you are a director, an "office holder", of your company, you are not also an employee unless you issue yourself with a contract of employment, spelling out the terms of your employment. If you have such a contract of employment, you are both an "employee" and a "worker" and entitled in full to all employment rights.

Also, as a director, you are required to deduct tax and employee Class 1 NICs from all earnings that you pay yourself, and your company must also pay employer Class 1 NICs on those earnings. However, if most of the money you take from the business is in the form of dividends, these are subject only to income tax, not to NICs.

If this explanation does not answer your question and you cannot find the answer to your question by doing a search elsewhere in PayPerShop, please click here and explain what it is that you still do not understand.

Is there another question you would like to see answered in PayPerShop? If so, please click here and send us your question.




More FAQs Related to Employment Status:


Who are "employees" for payroll purposes?
I am self-employed. Why does my client insist on putting me on the payroll?
I am self-employed. Am I entitled to holiday pay or any other benefits from my client?
What is the difference between a "contract of service" and a "contract for services"?
I am a company director. Am I an "employee" or a "worker"?
I find work through a recruitment agency. Am I an "employee" or a "worker"?

Return to Payroll & HR FAQs Home Page








Payroll & Human Resources - PayPerShop Logo For Payroll and Human Resource Professionals

UK Payroll & HR US Tax Resources Worldwide Payroll & HR
Google
Home Contact

Copyright © 2006 PayPerShop Ltd - Payroll, Human Resources (HR) & Payroll Taxes


Popular UK Pages:
UK Payroll News Categories | Payroll & HR Events - Photos | Payroll | UK Payroll Software A-Z | Payroll Software Downloads | Payroll Question | Payroll Search / Swicki | Deductions From Wages | UK Holiday Pay | National Insurance Numbers | Tax Codes | Employed or Self-Employed | Data Protection | Identity Fraud | BACS Payment - BACSTEL-IP

Popular US Pages:
US Payroll Software A-Z | Income Tax Withholding | Prevailing Wages and Hours | US Minimum Wage | US Workers' Compensation | US Labor Standards | US Unemployment Insurance | US State Holidays / Legal Holidays