What is a IR35?

It is a question we are asked by contractors and employers all the time. IR35, or the Intermediaries legislation, was introduced by HMRC in April 2000 to determine whether a contractor is truly self-employed, or if they are deemed as an employee for tax purposes.

If the relationship between the worker and the employer would be one of “employment” if the intermediary (limited company or partnership) was removed from the equation, the legislation ensures that tax and NIC is paid on earnings at a similar level to that of a direct employee.

It is important to determine whether or not you are caught by the IR35 rules. For this you will need to look into how you operate on a day to day basis, and this should be reflected in your contract with the client.

Generally, you would be deemed an employee if you are under the direct control and supervision of the client, you have set working hours, your work load and daily jobs are set out for you, you are required to do the work personally and you have no financial risk (i.e. you will be paid your daily/hourly rate no matter what and are not required to correct any mistakes in your own cost and in your own time).

If you have the final say in how you work for the client, you have to correct work yourself, have a number of clients at a time, have to provide your own equipment or have the freedom to hire someone to do the work you would not fall inside IR35.

The situation would need to be assessed in each case and on a contract by contract basis. Our team of accountants can help you determine whether or not you would fall under IR35 or not.

About the author: Kevin Deasy