IR35
UK tax legislation that determines whether a contractor working through their own limited company is genuinely self-employed or should be taxed as an employee.
IR35, formally known as the off-payroll working rules, was introduced by HMRC in 2000 to prevent "disguised employment" — situations where a worker provides services through a personal service company (PSC) but is essentially functioning as an employee.
If a contract is deemed inside IR35, the contractor is taxed as an employee, with PAYE income tax and National Insurance deducted at source. If outside IR35, they retain the tax efficiencies of operating through their limited company (corporation tax + dividends).
Since April 2021 (private sector reforms), the IR35 status determination has shifted from the contractor to the end-client (medium and large businesses), making client compliance critical.
- Inside IR35: contractor taxed at employee rates via PAYE
- Outside IR35: contractor pays corporation tax + dividends, generally more tax-efficient
- Status determined via HMRC's CEST tool or qualified IR35 assessor
- Affects locum doctors, IT contractors, consultants, creative freelancers