IR35 is a UK tax legislation that was introduced in 2000 to tackle tax avoidance by individuals who work through their own limited companies or other intermediary structures, but who in reality are deemed to be employees of their clients for tax purposes. The legislation aims to ensure that such individuals pay broadly the same amount of tax and National Insurance contributions as regular employees would pay.
The IR35 legislation applies to individuals who work for clients through an intermediary, such as a personal service company (PSC), and who would otherwise be considered employees for tax purposes if they were working directly for their client. The legislation applies to contracts for services, not contracts of employment, and looks at the substance of the working arrangement rather than the form of the contractual arrangements.
If a contractor or freelancer is found to be operating inside IR35, they will be required to pay income tax and National Insurance contributions at the same rate as if they were an employee. If they are found to be operating outside IR35, they can continue to pay themselves through their limited company and take advantage of certain tax benefits.
The responsibility for determining whether or not IR35 applies to a particular working arrangement lies with the individual and their clients. However, from 6 April 2021, new rules for off-payroll working were introduced for medium and large businesses in the private sector, which means that the responsibility for determining the IR35 status of a contractor has shifted to the client.
Nasa Consulting are considered one of the strongest UK advisors on IR35. Our service includes reviews of contract terms and working practices to assist our clients in making a correct decision on their status.