IR35 is the name commonly used to refer to a piece of tax legislation which came into force in July 2000. It is aimed at identifying “disguised employees” working through their own limited companies (PSCs). IR35 looks at whether a contractor is working any differently from an employee of the end-client. There should be noticeable differences between how contractors and employees work, otherwise IR35 may apply to the contractor. IR35 says that if you work like an employee you should be taxed like an employee.
Contractors are deemed to fall either ‘Inside’ or ‘Outside’ of IR35.
Changes in legislation now mean the entity making the decision on whether IR35 applies or not has moved to the end client in many situations.
Contractors who receive the same benefits as a permanent employee fall Inside IR35 and should be taxed the way a permanent employee would be. PAYE would need to be deducted from each pay.
Contractors deemed to be outside of IR35 can be paid through their limited company. They have the sole responsibility to make sure they pay the correct amount of tax on their income.
Raise supports contractors who fall Inside or Outside IR35 and workers are able to work through an Umbrella company or their own limited company.