What is IR35?
IR35 refers to Intermediaries Legislation conceived in 1999, and was created in an effort to counter tax avoidance.
IR35 has always been seen as a set of controversial rules due to their complexity and inability to give clear guidance.
In 2017 reforms moved the responsibility for determining IR35 from the contractor to the end client in the public sector and in 2021 these reforms carried over into the private sector as well. It has meant for many contractors that they are no longer able to use their limited companies.
Does IR35 apply to me?
The IR35 rules apply when a contractor provides services for a client through an intermediary, usually a limited company. The rules have been designed to figure out whether a contractor is genuinely self-employed or if they’re “disguised employees”.
A disguised employee is when a contractor would otherwise be an employee if they weren’t providing their services through a limited company.
As a contractor working through a limited company you are either inside or outside IR35. What does this mean?
Inside IR35
is when the terms of the contract or assignment falls within the IR35 rules. It means that if your contract is inside IR35 then the contract is subject to full PAYE and the contractor cannot pay themselves through a dividend payment via their limited company.
Outside IR35
is when the contract or assignment falls outside the IR35 rules and the payment can be distributed in dividends and not subject to PAYE deductions.
Advice for contractors
Contractors should read up and be familiar with IR35 if they are using a limited company. It is important that you do not ignore it. As the new rules come into effect, so will enforcement and penalties. It is important that you keep yourself safe and know where you stand.
If you think your contract is outside IR35 then do not conduct yourself in a way that could draw your contract inside IR35.
Stay alert. Ir35 regularly finds itself in the spotlight and subject to change. Follow updates and prepare yourself for changes.
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