IR35

IR35

What is IR35?

IR35 is a UK anti-tax avoidance legislation designed to stop contactors providing services to employers via a limited company and paying less tax and National Insurance (NI) in the process.

In the UK, shareholders of limited companies are eligible to receive a substantial part of their earnings as dividends, which are taxed at a lower rate than salaried income and not subject to National Insurance contributions.

Additionally, because contractors are off-payroll employees, employers are not liable for the 13.8% employer National Insurance contributions they would be if they were on-payroll.

The Inland Revenue (HMRC) estimates this loss through unpaid tax and NI contributions to be worth over £1 Billion per year and IR35 is designed to reduce this deficit.

Who does IR35 affect?

IR35 affects 2 main groups of people:

  1. Employees who provide services to employers via an intermediary company, known as a Personal Services Company (PSC). A PSC is a limited company set-up by a contractor to personally provide services to clients through. This group typically includes contractors, sub-contractors, freelancers, consultants and locums.
  2. Employers who hire employees in group 1 and who meet at least 2 of the following criteria:
    • Have an annual turnover of more than £10.2 million
    • Have a balance sheet total of more than £5.1 million
    • Have more than 50 employees