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Contractors find way round IR35



IT contractors believe they have found a way round new rules on how they are taxed - but it will require clients and job agencies to agree on new contract wording and the freelancers themselves to commit to it.

The regulations, known as IR35, went live following the March Budget. They mean that contractors working as limited companies get treated in the same way as employees as far as tax and National Insurance deductions are concerned.

Contractors had previously been able to pay themselves a token wage and obtain most of their income from dividends from their companies. This greatly reduced the amount of National Insurance due.

But the Professional Contractors Group, set up last year to fight IR35, has agreed a test case with the Inland Revenue.

In effect, the agreed contract wording makes a contractor an employer by committing him or her to finding and possibly training another person with similar skills to take over in exceptional circumstances such as serious illness.

Professional Contractors Group officer Susie Hughes says, "This substitution is key to the definition of self-employment. We stress that this is not an off-the-shelf contract."

The group has set up a facility on its Web site for people to put up their skills so that contractors can find people they might need to stand in for them.

An Inland Revenue spokesperson says, "Every case will be treated on its own merits."


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