What is IR35?

"IR35" is the name commonly used to refer to a piece of tax legislation which came into force in July 2000. It looks at whether a contractor is working any differently from an employee of the client. There should be noticeable differences between how contractors and employees work, otherwise IR35 may apply to the contractor.

Does IR35 apply to me?

IR35 is relevant to contractors who operate their own limited companies or partnerships and pay themselves dividends. If you provide a personal service to a client and are regarded as an employee of the client, you will fall inside the scope of IR35 and you will need to consider the implications of this. It’s important for you to determine whether you fall inside or outside IR35 at the start of every contract.

On 6th April 2013, IR35 was extended to 'office-holders.' Where a contractor fulfils the duties of an office, the income from those services is subject to PAYE/NICs as employment income. Simply put, a contractor will not be able to operate outside IR35 when acting as an office-holder of the client.

You do not need to worry about IR35 if:

  • You pay employed levels of PAYE and National Insurance Contributions (NICs) whether as an employee (for example, of an umbrella company) or as an agency worker being paid directly by the agency on PAYE.
  • You are self-employed i.e. working as an individual with full liability for any debts you may incur. Please note that in these circumstances, you will need to consider whether you are genuinely self-employed. You can view more information here

In April 2017, a new chapter of IR35 was introduced that affected contractors working in the public sector. Public sector clients are responsible for determining whether IR35 applies and where a contractor works within the scope of IR35, the public authority, agency or third party paying the limited company (“fee payer”) is responsible for deducting tax and NICs from those payments. It must also pay employer’s NICs and is included for calculating the Apprenticeship Levy.

What does it mean to be 'inside' or 'outside' IR35

If you are inside IR35, you should pay employed levels of tax. If you are outside IR35, and working as a director of a limited company, you may choose to pay yourself using a combination of salary and dividends. Whether you are inside or outside IR35 is the most pressing question.

Unfortunately, it is often the most difficult to answer. In essence, you are inside IR35 if you act and are treated like one of the client's employees. You are outside IR35 if you are genuinely in business on your own account. In practice, things are more complex than that and it is easy to get it wrong - sometimes with serious consequences.

How can PayStream help?

Having our own in-house legal and compliance team is the reason why our IR35 service is completely free to our existing My PSC customers! However if you are not currently using PayStream's accountancy services, we can still offer you highly competitive fees.

Send your IR35 query to our Compliance Team

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