IR35 is the shorthand for an anti-avoidance tax legislation for ‘disguised’ employees.


What is it?

The IR35 legislation allows the HMRC to collect tax and national insurance contributions from contractors at the same rate as an equivalent employee.


Prior to the introduction of the legislation, workers who owned a limited company were allowed to receive payments from clients direct to the company, and profits could be distributed as dividends and not subject to national insurance payments.


The company hiring ‘disguised employees’ also does not have to offer employer benefits, such as sick pay, to the contractor.


The rules were therefore designed to assess the legitimacy of a contractor, and introduced by HMRC in 2000.


However, since its introduction, it has been controversial due to its complicated nature, one that can even confuse HMRC themselves.


There have been recent court cases with high profile employers such as the BBC and ITV due to clashes regarding IR35 rules, both with varying outcomes.


Do you need one?

When determining IR35 status, there are three main considerations.


Supervision, Direction and Control

The degree of supervision, direction and control an employer has over a clients work can determine whether they sit inside or outside an IR35.


If these words appear in the contract, then the contractor will be deemed not truly self-employed.


The latest HMRC guidance on SDC can be viewed here.



A business should be able to provide a substitute (someone else who is able to carry out duties) to any contracted work, and if no substitute can be offered and/or accepted then it is likely to fall under HMRC scrutiny.


Substitution clauses deemed ineffective by HMRC can be viewed here.


Mutuality of obligation

Mutuality of obligation refers to whether the employer is obliged to offer the contractor work, and the contractor obliged to accept it.


A regular employer of a company has an obligation to continue working and completing tasks, and can only work for one company.


This shouldn’t be the case for a contractor, who should be able to leave the company once the task is complete, and is free to leave part-way through a task should that be necessary.


There are also other areas which distinguish employers from contractors such as pay, alternative work, equipment and employee benefits.


Upcoming changes

Changes to the rules were due to come into effect in April 2020, however were delayed due to the Covid-19 pandemic.


They are now due to commence on 6 April 2021, and effect who is responsible for the application of the legislation.


Currently, if a client is in the public sector, it is their responsibility to decide a workers employment status, and the worker should be notified of the decision.


If a client is currently in the private sector, it’s the intermediary’s responsibility to decide the worker’s own employment status for each contract. The private sector includes third sector organisations, and some charities.


When the changes in the rules commence, all public sector authorities and medium and large-sized private sector clients will be responsible for deciding if the rules apply.


If a worker provides their services to a small client within the private sector, the worker’s intermediary will keep the responsibility for deciding the worker’s employment status and whether the rules apply.