IR35
Tax legislation targeting 'disguised employment' — determining whether contractors pay tax as employees (inside) or through their limited company (outside).
IR35 refers to the Intermediaries Legislation, introduced in 2000 (Budget note IR35). It targets contractors who work through a limited company but whose working arrangements are effectively those of an employee — allowing them to pay less tax via the salary-and-dividend structure.
Being 'inside IR35' means your contract is caught — income is treated as employment income, subject to full PAYE income tax and employee NI. Being 'outside IR35' means you can use a limited company structure with tax-efficient dividend extraction.
Since April 2021, the responsibility for determining IR35 status has shifted to the end client (medium/large private sector and all public sector). Contractors retain self-assessment responsibility only for small private sector clients.
Umbrella company workers are not subject to IR35 — they are already employed under PAYE. IR35 only applies to contractors using limited companies (PSCs).