IR35, also known as the off-payroll working rules, was introduced to remove opportunities for tax avoidance by individuals working through limited companies, or personal service companies (PSCs).

IR35, also known as the Intermediaries Legislation, was introduced in the year 2000 and was designed to collect additional tax and NI from contractors who HMRC believe are working in ‘disguised employment’.

Disguised employment is where the working practices and wording of a contract are similar to that of an employee, but where the contractor enjoys the tax benefits of working through an intermediary, such as a limited company, also known as a personal service company (PSC). When a contractor is seen to be in disguised employment, they are deemed to be ‘inside’ or ‘caught by’ IR35.

The 2000 IR35 rules state that if your contract is inside IR35, then 95% of the fees you earn (less certain allowable expenses of employment, which include pension premiums) must be paid as salary to the contractor who has carried out the work.

For contractors working in the Public Sector, and for larger end-users (referred to here as end-client) in the Private Sector, the new ‘Off-Payroll Working’ rules now apply.

Read our guide ‘IR35 Explained’.