What is IR35?
If a contractor is working for an organisation under the same conditions as an employee, the law classes them as a “disguised employee”. IR35 was introduced in 2000 to identify these individuals and ensure that both off and on-payroll employees are taxed fairly.
Why do I need to know about this?
Under the new IR35 reform to the private sector, responsibility for determining a contractor’s employment status has shifted to the client, where eligible, as of 6 April 2021.
Previously, contractors in the private sector have been responsible for determining whether they are working inside or outside IR35, but these rules have now changed. The client will be responsible for determining the status of any contractors they work with and documenting this with proof.
This change was originally due to occur in March 2020, but was delayed due to the coronavirus pandemic.
What does this mean for me?
If you are an employer:
The new IR35 rules apply to medium or large businesses in the private sector only. If your business meets two out of the three criteria, you are classified as a small business and are exempt.
- Annual turnover is no more than £10.2 million
- Balance sheet total is no more than £5.1 million
- No more than 50 employees
If you are a contractor or freelancer:
We’ve written a full guide to what the new IR35 rules will mean for freelancers, covering what the rules mean and how you can prepare.
Do all my contracts have to be inside or outside IR35?
No. IR35 applies on a contract-by-contract basis, so your status may differ depending on the contract agreed. We’ve summarised the key points in our guide to inside and outside IR35.
Is there help available?
FSB members can log into the FSB Legal Hub where there is detailed guidance for both employers and contractors.
The GOV.UK website has an interactive tool that allows you to find out if you, or a worker on a specific engagement, should be classed as employed or self-employed for tax purposes. This can help you determine your status.
You should be cautious of any schemes claiming to increase your take-home pay by paying less tax and National Insurance. These tax avoidance schemes don’t work and can result in you paying more tax than you would have in the first place. For more information, read our guide to contractor tax avoidance schemes and how to avoid them.