IR35 (off-payroll working)

IR35 — formally the off-payroll working rules — exists to stop employment being dressed up as self-employment. It applies when someone provides their services through an intermediary, typically their own limited company, but would count as an employee if they were engaged directly. When the rules bite ("inside IR35"), the engagement is taxed broadly like employment, with PAYE and National Insurance due.

Who decides

Since April 2021, medium and large clients in the private sector (and all public bodies) must decide the contractor's status themselves and issue a Status Determination Statement, taking reasonable care. If the engagement is inside IR35, the fee-payer deducts tax and NI before paying the contractor's company. Where the client is a small company, the old rules still apply and the contractor's own company remains responsible for the decision. HMRC's CEST tool on GOV.UK gives a determination HMRC will stand behind if used accurately.

What points to "inside"

Status turns on the reality of the working relationship, not the label on the contract. The classic markers of employment are control over how, when and where the work is done; personal service, with no genuine right to send a substitute; and mutual obligation to offer and accept work. A relief chef or agency-style manager billing through a personal service company but working set shifts on the rota, under direction, looks a lot like an employee — which is exactly the situation IR35 targets.

Chapters 8 and 10, Part 2 of the Income Tax (Earnings and Pensions) Act 2003 — administered by HMRC; status guidance and the CEST tool on GOV.UK.

Related terms

• PAYE
• National Insurance
• Zero-hours contract