IR35, also known as the off-payroll working rules, is a set of tax regulations in the UK designed to determine the employment status of individuals providing services through an intermediary, such as a limited company. It can impact both contractors and the businesses that hire them. The rules determine whether a contractor should be treated as an employee for tax purposes, potentially affecting their tax liability and the tax obligations of the hiring business.

A contractor’s IR35 status is determined by evaluating various factors, such as the nature of the work, the level of control exercised by the hiring business, the contractor’s financial risk, and their ability to provide a substitute worker. These factors help establish whether the contractor is genuinely self-employed or should be considered an employee for tax purposes.

If you are found to be inside IR35, it means that HMRC considers your working arrangement to be akin to an employer-employee relationship for tax purposes. As a result, you may be required to pay income tax and National Insurance Contributions (NICs) as if you were an employee. Additionally, the hiring business may also have to pay employer NICs.

To prepare for IR35 compliance, businesses should review their contractor engagements to determine if any individuals may fall within the scope of IR35. Contractors should consider seeking professional advice to assess their IR35 status and potentially make changes to their working arrangements if needed. It’s essential to maintain accurate records and documentation to demonstrate compliance with IR35 regulations.

While IR35 applies to a wide range of industries and contractor engagements, there are certain exemptions and specific scenarios where it may not apply. For example, small businesses meeting specific criteria are exempt from certain IR35 obligations. However, it’s crucial to seek professional guidance to determine whether your specific situation falls within any exemptions or if you need to comply with IR35 rules.