If you are new to contracting, it is inevitable that you will hear the term ‘IR35’. But what is IR35 and how does it affect you as a contractor?
IR35 is the name of a piece of tax legislation that was put into place by HM Revenue & Customs (HMRC) in 2000, which is used to combat tax avoidance by those who should be paying taxes as a regular employee but aren’t.
If you work via an intermediary or personal service company (PSC), such as a limited company, IR35 rules will help you determine your tax status, and whether you are genuinely self-employed or a ‘disguised employee’.
HMRC defines this tax status as 'inside' or 'outside' IR35. Put simply, they can be defined as:
If you are determined to be ‘Inside IR35’ you will need to pay the same NICs and income tax as a regular employee. If you are ‘Outside IR35’, you can pay yourself through your limited company as a self-employed individual would.