Re: Can someone explain to me how it works in the UK?
1. UK has different tax (lower) rates for dividends compared with "earnings" (Salary or wages or emolument).
2 If you take sensible dividends, [say one fifth of total billings] e.g. between paying BOTH company shareholders (self and wife, as wife does the books) a dividend (for risk of running company) and then
3 Pay salaries/wages for employment part as contractor where Salary is 'comparable ' with or above an actual employee, you have no IR35 worries.
4 It is the distortion of 'remuneration' by paying Minimum Legal Hourly Wage to employee part and taking large dividend, that IR35 tries to catch.
5. You also need to demonstrate independence and ability to work without supervision and contract should allow you to provide a substitute, if 'contractor cannot attend' for contracted period; or contract says contractor may work at his own pace and has no need to comply with any time request of customer [ a form of 'direction' that turns you into an employee if you MUST attend at customer's direction].
6 I bill out at 5/2 times a permanent employee's 'salary'. Company would for employee incur 3/2 times stated gross employee salary with taxes, insurance, holiday, social security and pension costs . So I cost a goodly amount more than the advertised amount for my job as a salaried employee; but then the advert does not pull in a capable replacement so I continue in contractual employment.