What is IR35?

Here, we detail more about what IR35 is and offer the answers to the most frequently asked questions we receive.

What is IR35?

IR35 is a set of tax laws established by the government to combat “disguised employment”. There are a series of tests used to determine the tax status of contractors working through Limited Companies. If your contract has the same level of risk, responsibility and control as a permanent employee, you would be classed as inside IR35.

IR35 is not a new set of tax laws. The changes due to affect the private sector come the 6 April 2021, have already been in place in the public sector since April 2017.

As of 6 April 2021, companies in the private sector will be responsible for determining the IR35 status of workers. Only work completed on or after this date will fall under the new legislation. Anything worked up to and including 4th April will still apply under the old rules.

How is your IR35 status determined?

HMRC’s complex test considers several factors when looking at your contract, including:

  • Control – how much control does your client have over your working conditions, including how, when and where the work is done?
  • Substitution – do you have the right to send a replacement to undertake your work if you cannot fulfil your duties
  • Mutuality of obligation – are you required to complete a specific task, or is there scope for your client to ask you to perform additional duties?

In April 2021, the responsibility for determining IR35 status in the private sector is shifting from contractors to end-users/clients.

I want to continue working as a limited company, what happens next?

We will advise you if your role falls inside or outside of IR35 legislation.

  • Outside IR35: No change to you. Your limited company continues to be paid gross and the obligation to pay the appropriate income taxes to HMRC remains with you, the contractor.
  • Inside IR35: All payments made into your limited company on or after 6 April 2021, will have the relevant deductions made at source.
I want to change my payment method, what happens next?

If you are looking to change your pay method, please contact our Recruitment Manager on harriet.jenkins@xylaservices.com to discuss further.