Introduced in April 2000, IR35 is a targeted legislation aimed at assessing the employment status of individuals using personal service companies (limited company contractors).
It uses the same employment status tests as traditional employment status above and operates in much the same way.
It was intended to close a loophole in the tax system whereby an individual or client business could get around the traditional employment status rules through the use of a personal service company (PSC).
Since 6th April 2021, all client businesses in the public sector and all medium-large businesses in the private sector, are required by the legislation to determine the employment status of their limited company contractors, and the correct tax must be deducted at source before paying the PSC’s fee.
The working practices and contracts of an engaged PSC can be assessed in order to understand whether an engagement between a company and PSC falls inside or outside IR35.
To understand more about IR35 and what it means to be inside or outside, take a look at our IR35 webpage.