What is IR35?

IR35 is a piece of UK tax legislation designed to assess whether a contractor is a genuine contractor rather than a 'disguised' employee for tax purposes. Introduced in 2000 by HMRC, its official name is the Intermediaries Legislation, and it aims to prevent tax avoidance by individuals who provide their services through a limited company (commonly known as a Personal Service Company or PSC), but who would otherwise be an employee if that intermediary was not used.

Why Does IR35 Matter?

If a contract is inside IR35, it means HMRC considers the contractor to be an employee in all but name. As a result, they must pay income tax and National Insurance Contributions (NICs) similar to a regular employee. If a contract is outside IR35, the contractor is operating as a genuine business and can pay themselves in a more tax-efficient way, typically through a combination of salary and dividends.

Failing to comply with IR35 can lead to substantial tax liabilities, penalties, and interest.

Key Factors in Determining IR35 Status

HMRC considers several factors when assessing whether IR35 applies, including:

  • Control – Does the client control how, when, and where the contractor works?
  • Substitution – Can the contractor send someone else to do the work?
  • Mutuality of Obligation – Is the client obligated to offer work, and is the contractor obligated to accept it?

These and other indicators help determine the true nature of the working relationship.

Who Is Responsible for Determining IR35 Status?

  • Public sector (since 2017): The end client is responsible for determining IR35 status.
  • Private sector (since April 2021): Medium and large businesses are responsible for determining IR35 status. For small companies, the responsibility remains with the contractor.

IR35 Compliance: What You Need to Do

Whether you're a contractor, recruiter, or end client, it's essential to ensure IR35 compliance by:

  • Reviewing contracts carefully
  • Assessing working practices
  • Keeping detailed records
  • Seeking independent legal or tax advice where necessary
  • Using HMRC’s Check Employment Status for Tax (CEST) tool, although many prefer third-party assessments for greater accuracy and peace of mind

How We Can Help

At Evodia, we support contractors and hiring businesses in navigating IR35 confidently. Whether you need help understanding your IR35 status, reviewing contracts, or ensuring compliance, our team is here to guide you every step of the way.

Book a free consultation today to review your contracts, assess your IR35 risk, and build a compliant contractor strategy.

FAQs About IR35

Q1: Can a contract alone determine IR35 status?
No. HMRC looks at the actual working relationship, not just what's written in the contract. Practices must align with the contract to avoid IR35 issues.

Q2: What happens if my role is assessed as being inside IR35?
You’ll be required to pay income tax and National Insurance as if you were an employee. The organisation responsible for paying you will handle this and deduct the necessary income tax and National Insurance contributions from your pay.

Q3: What tools are available to check IR35 status?
HMRC offers the CEST tool, but many prefer independent reviews for more accurate and reliable results.

Q4: Do HR teams need to issue a Status Determination Statement (SDS)?
Yes, if you're in the public sector or a medium/large private company, you must provide a formal SDS to the contractor and fee-payer.

Q5: Can a contractor challenge their IR35 determination?
Yes. Contractors have the right to dispute the status decision, and the end client must respond within 45 days.