What is IR35?
IR35 is a tax legislation rule that was brought in by the government in 1999 and came into effect as of April 2000.
IR35 was introduced to prevent people from working under a ‘self-employed’ mask when in fact they are working solely for one company. HMRC takes the view that the individual should be treated as an employee in this instance. Contractors who are caught out by IR35 legislation will pay more tax and will have their after-tax pay reduced by up to 25%.
Why was IR35 introduced?
Before IR35 was introduced many self-employed contractors, such as IT and engineering contractors, were working as a limited company for a single client to avoid large tax and national insurance bills.
This legislation aims to prevent this, as depending on the terms of the contract, the contractor may need to become an employee of their client and pay tax as an employed person. HMRC commented that many contractors in the UK were ‘disguised employees’ and that they should be on their client’s payroll; these could all impact your ability to secure a mortgage if you are inside IR35 as a contractor.
How does IR35 affect you as a contractor?
It is important for all contractors in the UK, regardless of their industry, to understand the impact of IR35 on their business. Contractors who are subject to the IR35 legislation will be taxed under Schedule E, but they may still be able to claim certain expenses.
This may make it challenging for traditional lenders to assist with your mortgage, but Super Contractors can help.
Getting a mortgage as an IR35 Contractor
When applying for a mortgage, there are several criteria that you need to meet to achieve your mortgage goals. IR35 complicates matters further, and some high street banks may not be equipped to deal with this, especially when dealing with umbrella or PSC employees.
Although options are a little more limited when operating inside IR35, there are still a number of lenders who can assist, each with their own requirements. This is where a specialist mortgage broker, like Super Contractors, would be able to assist to ensure you are in the best possible position to apply and be accepted for a mortgage.
For more information, feel free to speak to our expert contractor mortgage advisers on our freephone number 0800 211 8700 or fill in our online enquiry form.
Please note, if you fail to keep up with your mortgage payments, your property may be repossessed.
The information contained within was correct at the time of publication but is subject to change.