Guidance

IR35 is a piece of tax legislation which came into force in 2000. Its purpose is to identify ‘disguised employees’ working through a PSC (Limited Company).

A Contractors’ IR35 status determines it’s tax position with HMRC. Contractors working through a Limited Company, who fall outside IR35, are entitled to receive gross payment and can therefore benefit from paying some of their income in dividends. Those who fall inside IR35 are regarded as ‘disguised employees’ for tax purposes, thus are only entitled to receive payment on a PAYE basis.

The responsibility for determining a contractor’s IR35 status moved from the contractor to the End-hirer.

The End-hirer is now responsible for determining the IR35 status of each role fulfilled by a Limited Company contractor and providing a Status Determination Statement (“SDS) to all contractors and fee-payers.

It is important for all End-hirers to review the status of all Limited Company contractors engaged, as they will be liable for outstanding tax, penalties and interest in the event a contractor has received gross payments, but found to be operating like a disguised employee.

The public sector IR35 changes were introduced in April 2017 and private sector changes were introduced in April 2021. This put an obligation on all public sector and private sector authorities to assess the status of contractors it engaged. These changes apply to all payments made.

More often than not, the Fee-Payer will be the recruitment agency. The Fee-Payer is the entity closest to the contractor in the supply chain and responsible for paying the contractor. Fee-Payers are responsible for deducting the tax and National Insurance contributions and paying these to HMRC were a role falls inside IR35.

End-Clients will be required to issue contractors with Status Determination Status (“SDS”), confirming the IR35 Status of the role and reasons behind the determination. End-Hirers must pass the SDS to the next entity in the supply chain and to each off-payroll worker.

We recommend that an IR35 Status Review is carried out at the beginning of every assignment and every 6 months whilst the assignment is ongoing or as and when changes occur, for example, if you agree to provide services in a different capacity or on a different project.

The end hirer is responsible for your employment status (and tax). In addition, an up-to-date IR35 status review is a good tool to use when talking to your agency or hirer about IR35.

An IR35 Status Review carried out by Brookson Legal Services consists of a review of the contract and review of the day-to-day working practices. We review your working practices by asking that you complete a questionnaire and having a discussion around how you operate. On the back of this discussion Brookson Legal Services will confirm the outcome of the review and provide you with additional advice and recommendation on how you can strengthen your IR35 position.

Yes, definitely. IR35 is assessed on each contract/assignment which the personal service company undertakes. You can be caught by IR35 on one assignment and not captured by IR35 on another. Even when you are caught by IR35, you can still benefit from being in the flat-rate VAT scheme and claim business expenses.