IR35 AND MORTGAGESby Benny Gala DNS Accountants
IR35 sounds more like a social security or secret agent code, but it’s a watchman of liability trespassers. They are indeed watching over the smart attempts to illegally evade the tax. The HMRC came up with this approach of nabbing those taking a detour from the law. The legislation keeps a check on those professionals hired by companies on a contract basis to provide complete service. Basically, the individuals mentioned earlier are more like “Freelancers” , who run a small scale company where they are the owner and hold most or all of the shares. The income tax and National Insurance are dues that the citizens owe to the government for the development of the country. IR35 stands for Inland Revenue and the number ‘35’ stands for the 35th budget press release in the year 1999. The act came into force on April 2000. The act was to ensure that people are rated well for their jobs and making it a point, that they “pay what they weigh”. The bill imposes a bar on tax avoiders by charging them extra, cutting down pension benefits and enroll them on the company’s payroll. The article will focus on how this act affects businesses, detail description on income tax and National Insurance and finally on how to be IR35 compliant to avoid being tried by the law. We will also take a look at how mortgages are being awarded to contractors and how IR35 has an impact.
The story dates back to 1999 when the UK’s Chancellor of Exchequer, then Gordan Brown articulated to the public the need for legislation that monitors the unaccounted cash flow, which is misconceived in the range of a self-employed. The press release for the bill came in the year 1999. The bill came into force in April’ 2000 and has had a great impact on “Freelancers” or “Contractors”. The employees who were once working in a company started a limited company or PSC (Personal Service Company) to avoid the NI dues that an employee would pay under Class 1 which is quite higher than the self-employed Class 2 and 4. The contractors were hired by the employers for their service for the same work of an employee but gets taxed differently. The regulatory bodies governing the payment of tax viewed this group of “Undercover workers” as potential sources of revenue for the country. They worked like any other employee but enjoyed ten times as much benefit than a registered employee. The whole scenario was beyond recognition as the law couldn’t split milk from water. They appeared like employees and self-employed, being at the threshold of these two states they begin to enjoy much pay. The act was to curb such unaccounted money to be circulated that way and of course to bring about “equity more than equality.”
Contractors have the equal privilege as anybody else to get a mortgage loan. It is quite evident that lenders are reluctant to provide mortgages as opposed to employed office workers due to lack of experience. You should have an average deposit of 10% to 25% in the bank in order for the banks to fund your company. One has to ensure that he/she has a clean record of on time repayment of loans in the past. The history of reliability gives you more incentive to get the offer. The lender also is made comfortable enough to lend you a loan if a huge deposit or property is pledged.
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Created on May 28th 2018 01:00. Viewed 573 times.