What is IR35?
IR35 relates to the situation where an individual (eg a contractor, freelancer or consultant) supplies their services to an organisation via an intermediary (eg the individual's own personal service company). IR35 is also known as the off-payroll working rules and the intermediaries legislation.
The IR35 rules are aimed at preventing tax avoidance where an individual is engaged through an intermediary. IR35 applies if the individual would have had employee status had they been engaged directly by the end client.
Reformed IR35 rules have applied to the public sector since April 2017 and will be extended to the private sector from 6 April 2021. The extension to the private sector was delayed from April 2020 due to the coronavirus (COVID-19) crisis.
Under the reformed rules it is the client engaging the individual that is responsible for assessing their employment status to determine whether or not IR35 applies. The reformed rules provide that, if IR35 does apply, the party that pays the individual's fees (this could be the engaging client or an agency) is deemed to be their employer for tax and national insurance purposes. The fee-payer must pay national insurance contributions (NICs) and the apprenticeship levy (if applicable) in relation to the individual and must deduct income tax and employee NICs from their fee.
Under the IR35 rules in place in the private sector until 6 April 2021, the intermediary is responsible for deciding whether or not IR35 applies and for operating PAYE in relation to the individual if it does.