IR35

In this simple guide to IR35, we explore the ins and outs of this complex tax legislation, focusing on what it means for contractors, along with the businesses engaging these workers.

HM Revenue and Customs introduced the ‘intermediaries legislation’, commonly known as IR35, in April 2000. The legislation is intended to combat the abuse by an individual who would be treated as an employee were it not for the fact they provide their services via their own personal service company (PSC). Working in this manner enables an individual to make substantial tax and NIC savings.

If the Revenue investigate a contract and decide that it is ‘caught’ by IR35, all income for the contract being scrutinised will be treated as PAYE, with HMRC demanding the tax (plus interest and possibly penalties) owed on this.

Obviously, many contractors are genuinely self-employed, but even so,  they face the same struggle to prove this to their clients who (in most cases) are now responsible for determining IR35 status.

Given the financial implications of working inside or outside IR35, it’s vital that all contractors working through their own companies are fully aware of the legislation and do everything possible to ensure their compliance.

The interpretation of IR35, and the defining of status, is reliant on case law – as such, the determining factors surrounding IR35 change over time and certain issues become more prominent following each significant case.

To determine whether you are caught by IR35 the Revenue will look at both the written contract between your limited company and the agency and the actual working practices – the way the work is performed on a daily basis. There are a number of key areas that must be considered and incorporated if you are to remain compliant.