What is IR35?

The term IR35 refers to the HMRC explanation of legislation contained in Schedule 12 of the 2000 Finance Act.

The purpose of IR35 is to remove opportunities for avoidance of Tax and NI contributions by the use of intermediaries, such as service companies or partnerships, in circumstances where an individual worker would otherwise be an employee of the client.

Essentially, IR35 affects all contractors who do not meet the HMRC's definition of 'self employed'.

Prior to IR35 the Government had been concerned about the hiring of individuals through their own service companies.  It was possible for someone to leave work as an employee on Friday and return the following Monday doing the same job as an indirectly engaged 'consultant' paying reduced Tax and NI contributions.

In practical terms from 6th April 2000 anyone who would otherwise be hired as an employee but who instead provided services via their own service company are deemed to be directly employed.  This way they are obliged to pay NI contributions and PAYE in the same manner as if they were directly employed.

For Inland Revenue information regarding IR35: Click here