What is IR35?

Definition of IR35

‘IR35’ is the term commonly used to refer to HMRC’s ‘off-payroll working’ rules.

These rules allow HMRC to collect Income Tax and National Insurance in situations where a contractor operates through an intermediary (usually a limited company) and without this intermediary the contractor would otherwise be an employee of their client.

Who decides if IR35 applies to a contract?

If a contract is with a public sector client or a medium-to-large private sector client, it’s the client’s responsibility to determine whether the contract falls within the scope of IR35. If the client determines that it does, they will place the contractor onto their payroll and will deduct Income Tax and National Insurance before paying the contractor.

If the contractor’s contract is with a small private sector client, the contractor’s intermediary must determine whether IR35 applies and, where applicable, make payment of any tax and National Insurance contributions owed.

HMRC will usually only get involved if it opens an enquiry to determine whether IR35 rules should have applied to a contract. HMRC provides more information about the IR35 enquiry process on its website. It also provides an online tool, ‘Check employment status for tax’ (CEST), to help people determine whether IR35 is likely to apply to a contract.

Disclaimer: The content included in this glossary is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this glossary. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.

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