IR35 is the name commonly used to refer to a piece of tax legislation which came into force in April 2000.
It was introduced with the aim of preventing the avoidance of paying tax and National Insurance Contributions.
The legislation applies if the relationship between the worker and the client would have been one of employment had it not been for the intermediary company.
IR35 is relevant to all workers that supply their services through a private limited company and pay themselves dividends. If you run your own business as a registered limited company, IR35 may be applicable to you and you will need to consider the implications of this, starting with working out whether you are ‘inside’ or ‘outside’ the legislation.
What does it mean to be ‘inside’ or ‘outside’ IR35?
If you are inside IR35, you should broadly be paying employed levels of tax and National Insurance Contributions. Whether or not you are inside the legislation is the most pressing question. Unfortunately, it is often the most difficult to answer. In essence, you are inside IR35 if you are essentially an employee of the place you work at (even if your contract portrays you differently).
You are outside IR35 if you are genuinely in business, on your own account. If you are outside IR35, you may choose to pay yourself using a combination of salary as an employee and dividends as a shareholder.