United Tax Network – The smarter choice

United Tax Network – The Smarter Choice

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United Kingdom – Risks for companies engaged with “one man” limited, due to extended IR35 rules

One of the announcement from the 2018 Budget, affecting employment in the United Kingdom was confirmation that IR35 rules will be extended in the private sector.


Under these new rules, the responsibility of deciding whether an individual  is correctly working outside IR35 will move from the individual itself to the organization working with the individual. As a consequence, the engaging company must decide whether the individual should be considered an employee for tax purposes. If so, then the engaging company will need to deduct PAYE and employee’s national insurance contribution at source and also pay the employer’s national insurance contribution.


The extended IR35 rules will be rolled out in April 2020 and shall apply to large companies (over 250 employees) and medium-sized companies (50-249 employees).  Therefore, all companies engaged with a “one man’ limited will need to carry out an audit to assess whether they are likely to fall under the new rules.


IR35, named after the ‘Inland Revenue 35’ leaflet, was introduced back in 2000 to prevent individuals (who were essentially disguised employees) setting up limited companies to minimize tax and national insurance contributions.


Prior to IR35 being introduced, an employee could leave employment on Wednesday and return to the same role on Thursday working via a one man limited company. As a result, savings on national insurance contributions and tax deductions were achieved by taking a large percentage of the earning of the one man limited company as dividends.