What on earth is IR35? Why does it affect nearly every small company, self-employed contractor and partnership? And why in the 2006 Budget did the Chancellor signal his intention to get even tougher.

Back in 1999, Chancellor Gordon Brown needed to raise more tax and felt that a large number of people - particularly contractors and freelance professionals - weren't paying their fair share.

He introduced tax laws, called IR35, that rewrote the relationship between contractors and their clients. Whether they liked it or not, contractors could find themselves being "employed" by their clients and liable for back-tax and National Insurance liabilities. Not to mention substantial fines.

That's still the case, and if you're contracting now, you have to be aware that HM Revenue and Customs are targeting contractors and freelance professionals, and can demand back-tax and National Insurance Contributions on all your contracts going back several years. Scary.

If that was not enough, the Chancellor also targeted small "husband and wife" and family run companies, introducing new tax laws that mean companies owned by close family members can, if the taxman says so, be liable for years of back taxes, totalling tens of thousands of pounds.

The 2006 Budget conformed that the government was going to take matters even further, to ensure that contractors and freelance professionals pay what HM Revenue and Customs considers their fair share.

So, if you are contracting through a partnership, your own personal service limited company or a composite company you will almost certainly fall under the provisions of IR35. This means you might have potential liabilities for additional tax payments, both with previous contracts and almost certainly with current and future ones.

But there is a way to enjoy the tax benefits of contracting and make IR35 simply go away. Working for your clients through an umbrella company, or employment management service like MyMoneycontractors, you get the best of both worlds. There is the favourable tax regime where, like being self-employed or contracting through a limited company, you can offset business expenses against tax. Plus, as standard, MyMoneycontractors insure all their members and handle virtually all of the paperwork.

IR35 and other tax laws that target contractors simply don't apply when you work through MyMoneycontractors, because we have an agreement with the taxman called a dispensation, allowing you to claim genuine business expenses. Problems with the taxman simply disappear. With the MyMoneycontractors scheme you will also be better off financially see below illustration: