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GLOSSARY

IR35 definition

What does IR35 mean?

The IR35 legislation is intended to prevent people who work in what looks like an employment relationship with their client from setting up a company and providing services through that, therefore avoiding employment. Where this happens, the client will pay the company and the individual will extract profits as dividends which are taxed at a lower rate than income tax. In addition, no NIC is paid either by the individual, the company or the client.

This company in between the individual and the client is known as an intermediary, hence the legislation referring to intermediaries.
 
This anti-avoidance legislation, imposes a charge for both tax and NIC giving a similar outcome for tax and NIC as there would have been had the individual worked directly for the client as an employee on payroll with PAYE applied.
 
The legislation applies on in certain circumstances, the most important of which is whether the individual would be considered employed or self-employed when considering the relationship between the individual and the client, if the company was taken out of the picture and the services were supplied directly. This is a complex area defined by case law.
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