IR35.
Information for Contractors
Whether you’re new to contracting or navigating your next assignment, we make IR35 status clear from the start - so you can focus on the work, not the worry.
What is IR35?
IR35, often called ‘off-payroll rules’ or the ‘Intermediaries Legislation,’ is a tax measure first introduced in 2000. It ensures contractors who deliver work in a similar style to employees pay alike in terms of income tax and national insurance. When a contractor's role is judged to be 'inside IR35', meaning their work setup resembles that of an employee, deductions for income tax and national insurance are needed from their pay.
Initially, it was up to the contractor's Personal Service Company (PSC) to assess if the contractor's role was inside or outside IR35 and handle tax deductions accordingly. However, the government noticed many contractors weren't aligning their taxes with regulations. To bridge this tax gap, reforms were rolled out: in 2017 for the Public Sector and in 2021 for the Private Sector.
Introducing the 2017 and 2021 Reforms
Starting April 2017 for the Public Sector and April 2021 for the Private Sector, the task of determining whether a role fell inside or outside IR35 switched to the end client - the recipient of the contractor’s services. It's now also down to the party paying the contractor’s limited company (often an employment agency) to handle tax deductions and payments.
However, if the end client is classified as a small company (meeting at least two of these criteria: annual turnover under £10.2 million, a balance sheet total under £5.1 million, or fewer than 50 employees), the responsibility remains with the contractor’s limited company. The agency’s size doesn’t impact this responsibility.
What These Reforms Mean for You as a Contractor
IR35 reforms impact only Limited Company contractors. If you're operating under a PAYE or Umbrella arrangement, these changes don’t concern you. For all new assignments, it’s critical to confirm whether the job is inside or outside IR35 before you begin. At Matchtech, we always make this status crystal clear when discussing contract opportunities.
Deciphering IR35 Status for Your Assignment
To help determine if your assignment is inside IR35, the Government’s Check Employment Status for Tax (CEST) tool can be a useful resource. When in doubt, you can also access support through the Government’s IR35 help service:
- Email: ir35@hmrc.gov.uk
- Phone: 0300 123 2326
- Web: www.gov.uk/guidance/understanding-off-payroll-working-ir35
Ultimately, the end-client decides the IR35 status and may use different methods to make their decision.
How Clients Decide on IR35 Status
For a worker to be deemed inside IR35, three conditions must be met:
- The worker offers Personal Service directly to the client.
- There is Mutuality of Obligation between the two parties.
- There’s enough Control to establish a master/servant relationship.
If any of these aren’t present, the worker is likely outside IR35. Other considerations include the worker's integration into the client’s business and whether the worker operates independently or relies heavily on the client’s business.
Disagreeing with the Client’s Assessment?
Legally, end-clients must provide a ‘status disagreement process,’ enabling contractors to challenge their IR35 determination. Contractors must receive an IR35 determination, with clear reasons given. If there’s disagreement, contractors can contest it, prompting the end-client to review their determination within 45 days, deciding either to adjust or uphold it.
Public Sector Changes
The 2021 reforms for Private Sector contractors mostly parallel those already in place for the Public Sector since April 2017. Nonetheless, all contractors—public and private sector alike—face similar rules starting April 2021, with a few tweaks:
- End-clients are to issue a written IR35 determination and the reasons to the next party in the chain, continuing onward to the contractor.
- Direct written IR35 determination and reasons should be given to the contractor upon request.
- Contractors are entitled to a formal process to challenge the IR35 determination.
Whether you're deciphering IR35 status or looking to work within its guidelines, we're here to guide you every step of the way.