IR35 is a piece of tax legislation introduced in 2000 to ensure the correct national insurance and income tax was paid by self-employed contractors. IR35 prevents tax avoidance by exposing self employed workers seeking to hide their employment status from HMRC by supplying services to clients via an intermediary. This practice is known as ‘disguised employment’.
In practical terms, IR35 is designed to test the day-to-day circumstances in which a contractor physically operates to determine if they meet HMRC’s criteria for self-employment. If they should fail, HMRC can reclassify them as either a worker or an employee and order all parties to pay the appropriate tax. This includes the company paying for the individual’s services too!
From 2020, the responsibility for IR35 compliance falls directly onto the employer. Check out our recent blog on what the upcoming changes to IR35 might mean for you
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