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IR35 - Our advice

What is IR35?

IR35 is a piece of tax legislation introduced in July 2000 to target disguised employment. It uses a set of tests to find out if someone is genuinely in business on his own account or a disguised employee of the client.

In essence, IR35 simply says that if a worker is a disguised employee of the client then he/she should be subjected to the same tax and national insurance deductions as other regular employees. IR35 does not therefore affect those paying employed levels of tax (for example, umbrella employees) but does affect those running their own personal service companies (PSCs) and declaring dividends from company profit.

Has IR35 changed since 2000? 

Over the years, HMRC has tried to improve the administration of IR35 by updating their guidelines, introducing an IR35 helpline and providing better training to HMRC staff. On 6th April 2013, IR35 was also extended to ‘office-holders.’ This means that where a contractor fulfils the duties of an office, the income from those services should be subject to PAYE/NICs as employment income.

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. In April 2020, this will be extended to the private sector.

Worried about IR35 - what are the options?

1. Leave it to us - we give tailored advice on what is suitable

By working with a provider like us that offers a range of services, you and your contractors will be in safe hands:

  • Limited company contracting remains a legitimate way of working and continues to be the most tax-efficient. Our IR35 advice will include a review of the contract(s) and everyday working practices. If the contractors falls outside IR35, you won't need to worry about the AWR or pension obligation.
  • Umbrella employment is useful for those contractors that fall inside IR35, or for whatever reason do not want to set up a limited company. Our umbrella company is compliant and works within the spirit of HMRC rules and guidelines. AWR will still apply.

2. Take an umbrella only approach

Umbrella employees pay tax at employed levels and so there is no need to worry about IR35. However, it's important to bear in mind the following:

  • For those contractors genuinely outside IR35, working through an umbrella company is not the most tax-efficient vehicle.
  • Agency Workers Regulations (AWR) will apply. Umbrella employees generally fall inside the scope of AWR and the agency will therefore need to ensure its contractors meet the basic working and employment conditions. If the agency does choose this route then we can help in ensuring AWR obligations are met and we have an AWR portal to help.

What's our advice?

Choose a provider that has a strong focus on compliance and offers a choice of services. A compliant service provider like PayStream will weigh up the contractor's individual circumstances and only offer the most appropriate route.

  • Does the provider offer IR35 reviews on both the contract and working practices?
  • Has the service provider been audited? We hold both the Professional Passport accreditation and are regularly audited by BDO.

Infographic: What helps and hinders your IR35 status?

Launch infographic