What is IR35?

The legislation introduced in April 2000 relating to individuals supplying their services through their own companies or partnerships has become known as “IR35”. It seeks to address the perceived abuse of the tax system whereby would-be employees set up and work under the guise of their own companies, which receive income outside of the PAYE tax system that would normally apply to payments made to employees.

IR35 seeks to tax all of the personal service company income as if it were the salary of the worker, but the liability to Income Tax and National Insurance Contributions is placed upon the personal service company, rather than the company’s client, i.e. the deemed employer. The company’s income from its clients is deemed to be a payment to the worker at the end of the relevant tax year, and is subject to PAYE.

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