IR35 was introduced in 2000 to offer protection and guidance around individuals working for an intermediary, for example a Ltd company, instead of as an employee, and not paying the correct income tax and national insurance contributions.

The legislation requirement states that all companies must take care when assessing whether a contractor is inside or outside of IR35.

Where an assignment is deemed ‘inside’ IR35, PAYE deductions must be made from the contractor’s pay.

Any assignment ‘outside’ IR35 is classed as a genuine B2B service and is therefore not subject to the same tax treatment as employees.

The potential financial penalties to an intermediary company can be significant if incorrect steps are implemented.  It’s important that companies have the right tools and processes in place to help them manage their risk, whilst still capitalising on the many benefits of a contractor workforce. 

Inside or Outside of IR35?

Checks that confirm whether you are inside or outside of IR35, making sure there are no grounds for possible confusion about a contractor being disguised as an employee. 

  • Control over your workload and how it is delivered – contractors are usually able to manage their own workload. This may include how the work is delivered. You may want to consider providing contractors the right to send a substitute. This will come with its own rules of engagement, and the substitution should be genuine.
  • Mutuality of obligation – if you are obliged to carry out further projects at the end of an assignment, you could be viewed as an employee by HMRC. The interpretation of this law has been challenged and there are practices to be considered. Ensure contractors are within the scope of their role or issue a new contract. Contracts should be open to termination with minimal notice. Check the work levels, there should be no minimum requirement set.
  • If you receive employee benefits such as holiday or sick pay, you are considered inside of IR35.

This is not an exhaustive list of checks that could potentially be made, seek guidance if you require further details

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