IR35 has been around for a while, although it has been known by other names, including the ‘intermediaries legislation’ and ‘off-payroll working’.
IR35 is anti-avoidance legislation that looks to tackle the issue of ‘disguised employment’. In practice, this means that IR35 is targeted at individuals who contract with a client indirectly through what’s called an ‘intermediary’ in order to gain income tax and national insurance advantages. The intermediary is normally a company.
The IR35 legislation ignores the existence of the intermediary and looks at the nature of the working relationship between the contractor and their client to see if it is indicative of employment. If it is, the contractor is taxed in a way that puts them in a similar position to an employee who works directly for the client.
IR35 is not only an issue for contractors and freelancers.
IR35 has the potential to impact all areas of an organisation’s labour supply chain, from recruitment agencies to an organisation’s HR, finance and payroll departments.
Because of this, it’s important to know when IR35 may apply, and what it means for both contractors and engagers when it does.
In short, IR35 should be considered in cases where:
IR35 does not apply in cases where an individual is:
There are no set features of a contract that mean IR35 will or won’t apply. Instead, the contract and the practical working relationship between the contractor and engager are considered in the round. Factors considered as part of an IR35 review can include:
Some factors, such as a high degree of control, are indicative of an employment relationship. Others, such as the right to provide a substitute, are more indicative that IR35 does not apply.
The responsibility for determining whether a contractor is deemed ‘inside’ the IR35 legislation depends on the sector in which the organisation hiring the contractor operates.
Currently, responsibility for determining IR35 status falls to the contractor (or, more specifically, the contractor’s company).
However, from 6 April 2021, medium and large private sector organisations will take over the responsibility of determining IR35 status.
Where a contractor provides services to a small client, responsibility for deciding IR35 status will continue to remain with the contractor’s company.
You should not have to give HMRC information that it already has or can obtain elsewhere. You will be able to use AccountsPortal to check the information that HMRC holds about your business at any time to ensure that it is complete and correct.