What Is IR35?

IR35 is the common name for the off-payroll working rules. They make sure that a worker who provides their services through their own intermediary, usually a limited company known as a personal service company (PSC), pays broadly the same Income Tax and National Insurance as an employee would. The rules apply where the worker would have been an employee if they had provided their services directly to the client (gov.uk: Understanding off-payroll working (IR35)).

Who decides depends on the client. The rules apply to all public sector clients and to medium and large-sized private and voluntary sector clients. Those clients must decide the worker's status themselves, even where the worker is supplied through an agency, and communicate the decision in a status determination statement that gives their conclusion and the reasons for it. A small private or voluntary sector client does not make the decision; the worker's own intermediary does, although the client must confirm its size if asked (gov.uk: Off-payroll working for clients).

Size tests apply only to clients. HMRC says all agencies, whatever their size, have some responsibilities under the rules, particularly where the agency is the deemed employer that has to deduct tax and National Insurance before paying the worker's company.

IR35 is a tax regime. It is unrelated to the Agency Workers Regulations, which deal with equal treatment on pay and working conditions, not with how a worker is taxed. A contractor can be inside IR35 and still fall outside the AWR, or the other way round, so an agency needs to track the two separately for each placement.