IR35 compliance advice

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 their 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.

The responsibility for operating IR35 shifted from the individual contractor to medium or large-sized clients and third sectors in April 2021. Developments in the April 2021 legislation, such as the client led status disagreement process, were also applied to the public sector.

Worried about IR35 - what are the options?

Leave it to us

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.

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.

IR35 Comply

IR35 Comply is PayStream’s complete IR35 review service which enables you to manage IR35 throughout your supply chain, all via our market leading online portal.

Our innovative portal is quick and easy to use, shares information throughout the supply chain and is supported by our internal team of IR35 experts.

Learn more about IR35 Comply