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IR35 is a tax law which affects self-employed workers and contractors. It came into effect in
April 2000 and is aimed at cutting down on the exploitation of a tax loophole.
Prior to the introduction of IR35, some freelance or contract workers avoided paying tax and
National Insurance contributions by setting themselves up as a company. In doing this they become
the sole shareholder, as well as being the employer and the only employee - basically, they
are a one-person company.
When they sell their services to another organisation and charge them for their work, they
take money out of the company in the form of dividends instead of a salary. Dividends are not
liable to PAYE or NI contributions, so the worker benefits from deduction-free income and can
save thousands of pounds a year by avoiding these payments.
However, be warned. This is now illegal, and workers found exploiting the loophole could
be prosecuted.
To find out more about IR35 and your eligibility to pay income tax and NI contributions,
call the Inland Revenue helpline on 0845 303 3535.
More taxation advice
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