IR35 Legislation

IR35 is tax legislation that is designed to combat tax avoidance by workers supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used. Such workers are called ‘disguised employees’ by HM Revenue and Customs (HMRC).

It is important to emphasise at the outset that the choice does not in any way influence the IR35 status of the contract or modus operandi of the working arrangements. The choice would also not influence any HMRC review or decision as to whether the contract falls within the regulations of IR35.

However, since the Managed Service Company Legislation was introduced in the 2007 Budget, the only viable umbrella option is to use a PAYE Umbrella, which effectively means all income is paid as though the contractor is caught by IR35. This is a key point, since the financial impact of being caught by IR35 is considerable. You can find out how this affects you personally using the IR35 Calculator.

A further point to make, in light of the MSC legislation, is that if you go via a company route then you must run your limited company yourself, rather than delegate control and key decisions to a third-party supplier.