IR35 Quick Guide
‘IR35’ refers to legislation introduced in April 2000.
The aim of the legislation is to eliminate the avoidance of tax and National Insurance Contributions (NICs) through the use of intermediaries, such as Personal Service Companies or partnerships, in circumstances where an individual worker would otherwise be regarded as an employee of the client.
Prior to the introduction of the legislation, an individual could avoid being taxed as an employee on payments for services and paying Class 1 NIC by providing those services through an intermediary.
The worker could take the money out of the intermediary, normally a Personal Service Company, in the form of dividends instead of salary. As dividends are not liable to NICs, the use of a dividend remuneration strategy results in the worker paying less in NICs than either a conventional employee or a self-employed person. And PAYE would not apply to the dividends.
The legislation ensures that, if the relationship between the worker and the client would have been one of employment had it not been for an intermediary; the worker pays tax and NICs on a basis which is fair in relation to what an employee of the client would pay.
Who decides my IR35 status?
Following the new legislation, the responsibility for determining your employment status lies with you. If you are in 'deemed' employment then the regulations will apply to you. If however you are operating in a self-employed context then the regulations will not affect you.
I am a contractor operating in a self-employed context, and would therefore like to trade outside of IR35, what should I do next?
The final decision must be yours, but if you choose to trade outside of IR35 we would recommend that you have your contract reviewed & insured. QDOS Consulting is one company that specialises in insurances for limited company contractors.
They will be able to review your contracts and advise you of any amendments that might need to be made. If they consider your contract to be IR35 compliant then they will be able to offer to you insurances against any challenges made by the Inland Revenue (an approx. price for the annual cover is £325 - £350). They can be contacted at www.qdosconsulting.com or on 01455 850 000.
If you would like further advice on umbrella services or setting up a Limited Company please call Kerry Pickersgill on 0161 968 8100 or email
Client introductions: we offer £75 for a new Limited Company and £50 for a new Umbrella
Reilly McMordie specialise in providing accountancy services for contractors throughout the UK. Established in 1985, we have extensive experience in the industry.
Next Step:
Please contact us if you need further advice, have any questions about our services, would like a free consultation or a fixed fee quote.
