As a small business owner, you may well have been looking for information about the ir35 legislation. If that applies to you, then look no further! We've taken a look at what the IR35 is exactly, how it can affect your finances, and how best to work around it with the help of a qualified professional.

The IR35 was first introduced to prevent full-time employees from unfairly reaping the benefits of side-line ventures without paying additional tax on any extra earnings accumulated. Unfortunately a couple of grey areas in the legislation have caused confusion for some contractors and freelancers, and recently there have been a few controversial cases, including a couple involving public sector workers, where individuals who believed they were not affected by the IR35 found out they were, and vice versa.

Some contractors, after reading these tales of woe, have perceived the IR35 to be a waste of time, and one which leaves a slightly bitter taste in the mouth. In 2011, the ‘Office of Tax Simplification called for the IR35 to be removed, or at the very least reviewed, but the UK coalition government has not acted on this advice to date.

This means that, whether you like it or not, it's your responsibility to protect yourself from the IR35, or, if you do fall within the IR35, you need to ensure that you manage your accountants shrewdly in order to offset any losses to the tax man for your additional earnings as best you can.

I'm not sure if the IR35 applies to me…how can I be sure?

To put it simply, if you're a contractor (in most cases) the IR35 shouldn't apply to you. You will still, however, need to have the ability to prove to the HMRC, with appropriate documents, that you're a ‘self-employed contractor'. The HMRC website explains more about this, but don't worry if you find the technical jargon all a bit much; you can speak to a specialist contractor accountant if you need some impartial professional ir35 info.

If the IR35 does apply to me, what should I do?

You will be exempt from the IR35 if you can prove that you are a contractor working through your own limited company, but if, as a full-time employee you are choosing to carry out extra work as an additional source of income on the side, or you fail to sufficiently prove that you are a full-time contractor, creating a limited company might just be the best option open to you.

By doing this, you will still need to pay more tax on any additional earnings, but you'll be able to offset these losses by claiming expenses for charges incurred during travelling and for accommodation.

To conclude, if you do want to avoid the IR35, you're going to need to maintain honest and transparent accounts, and remember that even if you find yourself within the terms of Intermediaries Legislation 35, it's not all bad; there are a range of benefits to be had.