Everything you need to know about IR35

  • IR35 rules are primarily targeted at combatting what HMRC perceives to be ‘false self-employment’ among off-payroll workers in the private sector.

    These are generally contractors or freelancers, who provide services to clients through a private services company (PSC), limited company or other intermediary. Essentially, HMRC deemed that some contractors are carrying out the same duties as an employee but are not paying the same tax and National Insurance (NI). HMRC has set to rectify this via IR35, so these types of contractors pay PAYE and NI contributions.

    The revised legislation, which came into effect in April 2021, is called IR35 because of the original press release that was issued in 1999 by the Inland Revenue – which was replaced by HMRC in 2005. IR35 is also known as ‘off-payroll working rules’ or the ‘Intermediaries Legislation’.

  • IR35 impacts businesses, contractors and freelancers. You may be affected by the rules if you are:

    • A contractor or freelancer who provides services through your own intermediary, PSC or limited company
    • A client who receives services from a worker/contractor/freelancer through their intermediary, PSC or limited company
    • An agency that provide workers’ services through their intermediary, limited company or PSC
  • Under the previous rules, it was the responsibility of the contractor to determine whether they were self-employed or employed for tax purposes when working with a client.

    However, as of April 2021, the responsibility for determining the tax implications now lies with the end customer (also known as the hirer or engager), i.e. the business or organisation receiving the contractor’s services.

    If you’re already one of our clients and use the services of self-employed contractors or are considering using freelancers who operate through PSCs or limited companies, your Search consultant will be able to advise you on the steps you need to take. They can help minimise any risks to your business and workforce shortages.

    If you’re not signed up with Search, please contact us for a confidential conversation with one of our experts.

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  • We understand that IR35 can be complex and confusing. The main difference with the new off-payroll working rules is that the decision of whether you should be taxed as a self-employed contractor/freelancer or an employee is down to the judgement of the end client.

    For any assignments, you will be assessed by clients who will determine whether for tax purposes you are:

    • Employed, meaning you are ‘inside IR35’
    • Self-employed, meaning you’re ‘outside IR35’

    If an assignment is deemed to be ‘inside IR35’, you may have some decisions to make about how you provide your services going forward. If you choose to work within IR35, you will have to pay PAYE income tax and NI in the same way an employee would. It’s worth noting that net take home pay is likely to be lower ‘inside IR35’ as an employee than ‘outside IR35’ under a self-employed model.

    If you are a contractor operating through a limited company, PSC or other intermediary, we’d recommend speaking to your accountant about how IR35 might affect you when working for clients.

Helpful resources

Whether you’re a contractor or employer, it is vital that you understand IR35. To support you, we’ve pulled together a list of useful resources.

check your employment status

Check your employment status

HMRC has built a Check Employment Status Test (CEST) tool, where self-employed workers can check their employment status for tax purposes.

Use the CEST tool
Determine if you are inside IR35

Contractor flowchart

HMRC has created a flowchart that can help contractors and freelancers determine if they’re inside or outside IR35.

Access the flowchart
off payroll guidance IR35

Off-payroll guidance

On its website, HMRC has a dedicated IR35 section with IR35 business tax information, an employment status manual, details on fee-payer responsibilities, off-pay roll communication resources and more.

View guidance