What is IR35? IR35 Explained

IR35 does not apply to all contractors. The legislation must be considered for all contractors providing services via an intermediary. Whether the legislation needs to be applied depends on whether the engagement is deemed employment, i.e. "Inside IR35".

A Personal Service Company (PSC) is a limited company that offers an individual's services to a client where the individual is a shareholder.

IR35 or off-payroll does not apply to sole traders. However, HMRC can use similar legislative powers if they consider the individuals are engaged like employees, in which case taxes and penalties would be due.

All medium and large companies in the UK are subject to the off-payroll legislation introduced in April 2021. Where a worker provides services to a small company, the original rules introduced in April 2000 still apply.

Inside IR35 refers to a contractor considered an employee for tax purposes.

IR35 is a set of tax regulations first introduced in April 2000. The name "IR35" comes from the original press release issued by the Inland Revenue (now HMRC).

The "IR35 reforms" were rolled out using the off-payroll legislation to the private sector in April 2021.

IR35 and off-payroll are two pieces of tax legislation designed to address perceived tax avoidance. The rules must be considered when contractors operating via limited companies could be regarded as employees of their clients if they didn't work through their company.

IR35 status can change over time if the nature of the contractual and working relationship between the worker and the company changes.

The UK government introduced new IR35 rules in the public sector in April 2017 and in the private sector from April 2021, which transferred the responsibility of determining whether the rules applied, along with the tax liability, from contractors to end-clients.

IR35 Shield helps businesses and contractors assess their IR35 status and ensure ongoing compliance.

The key changes in the new IR35 reform legislation, namely off-payroll, saw significant differences. The critical change was the shift in responsibility of which party needed to assess the status of a contractor and collect tax.

IR35 status is determined by evaluating, using common law, whether the relationship between a worker and the company they provide services to would be considered employees if not for the interposition of an intermediary.

Genuine contractors working through limited companies will always want to work outside IR35 because they believe they are running their own businesses.

Working "Outside IR35" refers to a contractor considered not to be a deemed employee for tax purposes.

IR35 and off-payroll are related but not the same in the UK tax system.