IR35

IR35 is UK tax legislation that determines whether a contractor is a genuine business or a disguised employee for tax purposes. It affects how contractors engaged through personal service companies are taxed.

What is IR35

IR35 assesses employment status to decide if payments should be subject to PAYE and National Insurance. If inside IR35, fees are taxed like employment; if outside, the contractor retains business tax treatment.

How Does it Work

HMRC tests factors such as control, substitution and mutuality of obligation. In the private sector, responsibility for status decisions often falls on the client or agency depending on rules. Status assessments must be documented and supplied to the contractor.

Practical Usage in HR and Recruitment

HR, recruitment and payroll teams use IR35 assessments to manage compliance, payroll deductions and contracting policies. Typical actions include preparing status determination statements, updating contracts and engaging payroll providers or umbrella companies.

Clear status checks reduce tax risk and contract disputes.

• Hiring manager deciding to engage a contractor via PSC
• Payroll applying PAYE for an inside IR35 assignment
• Recruiter advising rates that reflect tax and employer costs

Related concepts include employment status, PAYE, National Insurance and off payroll working. These terms intersect with IR35 in tax, compliance and workforce planning.

Employers should seek specialist advice for complex cases and keep records of assessments.