IR35
IR35 is another term for the Intermediaries Legislation. It is a UK tax legislation that was introduced in 2000 to combat tax avoidance by individuals who provide their services to clients through an intermediary, such as a limited company or a personal service company (PSC). The legislation is designed to ensure that such individuals pay broadly the same amount of tax and National Insurance contributions as if they were employed directly by the client.
The IR35 legislation requires individuals to determine their employment status for tax purposes based on the working arrangement between themselves, the client, and the intermediary. If an individual is found to be working in a manner that resembles that of an employee, they will be considered to be “inside” IR35 and be subject to tax and National Insurance contributions, as if they were employed directly.
Prior to the 5th of April 2021, the responsibility of determining an individual’s employment, as either ‘inside’ or ‘outside’ of the IR35 fell on the individual themselves, including the responsibility for any associated tax liabilities.
However, from the 6th of April 2021, this responsibility shifted to the end client, who became responsible for determining an individual’s employment status and for deducting tax and National Insurance contributions, if the individual is deemed to be “inside” IR35. The end client has to prove that they have a robust process to determine this and demonstrate that they have taken ‘reasonable care’ to ensure that their determination is sound.
This change is known as the IR35 reform, or off-payroll working rules and it has had a significant impact on the way businesses engage with contractors and other workers who operate through intermediaries.
IR35 is an important piece of legislation that aims to ensure fairness and compliance in the taxation of individuals who work through intermediaries and makes sure that all workers are treated equitably under the law.