What Is IR35 and Does It Apply to You?

IR35 applies to some people who work through an intermediary, such as their own limited company, but would otherwise be employees for tax purposes. Its aim is to ensure broadly similar Income Tax and National Insurance treatment.

Lowdown

The rules can apply where a worker provides services to a client through an intermediary, such as their own limited company, and would have been an employee for tax purposes if engaged directly.^[1]

Why It Matters

IR35 status depends on the actual working arrangement and is assessed contract by contract. Relevant factors include control, whether personal service is required, any genuine right to send a substitute and the wider terms of the engagement.^[1][2]

For public-sector and medium or large private-sector clients, the client is generally responsible for determining the worker's tax status. If the rules apply, the deemed employer, often the organisation paying the worker's intermediary, must account for the relevant employment taxes.^[3]

Being treated as an employee for tax purposes under IR35 does not automatically give you employment rights against the client, such as paid holiday or sick pay.^[5]

Where a private-sector client is small, responsibility for assessing IR35 generally remains with the worker's intermediary.^[3]

Where the client is responsible for assessing IR35, it must provide a Status Determination Statement (SDS) explaining its decision and the reasons behind it. If you disagree with the decision, you can challenge it through the client's disagreement process.^[3]

HMRC's Check Employment Status for Tax (CEST) tool can help assess an engagement. HMRC says it will stand by the result if the information provided is accurate and the tool is used in line with its guidance. If the working arrangement changes materially, the assessment may need to be repeated.^[4]

Our Conclusion

Check both the written contract and what actually happens in practice. If you use CEST, make sure your answers reflect the real engagement, not just what the contract says.

Sources

[1] HMRC, Understanding off-payroll working (IR35)

[2] HMRC Employment Status Manual, Control — overview and Personal service

[3] HMRC, Off-payroll working for clients and Off-payroll working for intermediaries and contractors providing services to small clients

[4] HMRC, Check employment status for tax (CEST) and Employment Status Manual — Results from CEST

[5] HMRC, Factsheet for contractors — changes to the off-payroll working rules (IR35)