IR35 is a set of rules governing the amount of your company's income which must be paid out as a salary. Dividends do not attract National Insurance contributions and in the past it was quite common for company directors to take a large proportion of their income as dividends instead of salary. Indeed in some cases, directors paid all of their income as dividends thus avoiding paying any National Insurance.

So, it was hardly surprising that the Inland Revenue eventually acted to close this loophole. This they have done with the introduction of new legislation referred to as IR35. This new tax regime tries to apply fresh rules to earlier employment status legislation, much of which had already been challenged over the years in the courts. As a result IR35 is overly complicated and unnecessarily burdensome, which accounts for many challenges, a large proportion of which the Inland Revenue has lost.

However, do not let any of that become a worry to you. Assuming that you are not trying to evade tax that others and you should be paying, you will not find it particularly onerous and we are on hand to give practical day-to-day advice.

Decisions on IR35 status are legal matters and, not being lawyers, we are only able to give general advice. Individual circumstances vary and it is also quite possible to have an IR35 contract or a non-IR35 contract running simultaneously or separately in the same tax year. Again, do not worry - our system caters for this.

For the sake of explanation, if you are ultimately recruited by a provider to do the work, you should forget that link, in the same way you should ignore the link of running your own company. The Inland Revenue will judge you and your position with your ultimate client, based upon the nature of your work. In simple terms, your status under IR35 rules could be as follows:

• if you are an interim manager, you almost certainly fall under IR35. By definition, an interim manager would be employed by a client to undertake a task that might otherwise have been fulfilled by a member of its own staff (had they got someone with your particular talents!). You would be working on a regular basis in its offices, sitting at its desks, using its equipment, carrying out the function of a member of its staff
• if on the other hand, you visit the client's offices occasionally and you work a lot from home there are other matters to look at. Do you go to clients and tell them what they should be doing and how to do it, leaving their own staff to carry out the work? If so, this is verging on consultancy and you are more likely to be outside the scope of IR35 especially if you have a number of clients at the same time
• if you are a consultant you may well be outside IR35 but this is a grey area and you may possibly need legal advice

IR35 is not really arduous; it simply means that 95% of all income, less certain expenses incurred in carrying out a contract for a client, has to be paid out as salary to the person who earned it.

A much more detailed discussion document is available in Client Downloads 'IR35 explained'. You will need a username and password to access this section.