IR35 Contract - what you need to know

The Intermediaries Legislation, or IR35, has been enforced since the year 2000. The aim of the legislation is to remove the tax advantages that come from individuals providing services via a limited company, who are actually ‘disguised employees’ working for a client company.

There are often two terms used to describe the status of an individual working for your company; if they are referred to as being ‘inside IR35’, they are considered to be your employee and are subject to PAYE and if they are described as ‘outside IR35’, they are classed as a genuine business that operates outside of IR35 regulations.

Contractors and client companies commonly spend time ensuring that they do not fall foul of the IR35 regulation. This has only become more important since the changes to the IR35 legislation came into effect on 6th April 2021. Find out more about the new IR35 regulations and what they mean for your SME’s IR35 contracts.

It is crucial that any IR35 contracts are fully compliant with IR35 legislation and any contracts that you are unsure about should be subject to an IR35 contract review. If you do not ensure there is an IR35 compliant contract in place, your business and contractor may both be in breach of tax legislation and could be subjected to a fine for unpaid taxes.

Our IR35 contract review services can help you ensure your IR35 contracts are compliant, and all company working practices are detailed in the terms and conditions of the contract.

Let's get started on your new IR35 contract!

Whether you need an IR35 contract review on outside IR35 contracts or inside IR35 contracts, our expert lawyers can offer business legal advice tailored to your SME. Our IR35 contract review service is very easy to use so you can get your agreement quickly sorted.

  • We can check if your IR35 contract is legally sound and fit for purpose to avoid tax legislation breaches
  • Our IR35 contract review service covers UK related matters only
  • At LawBite, our expert lawyers can review your IR35 contract from just £160+vat for contracts up to 20 pages / with a 3-day turnaround. This includes a lawyer consultation to establish the full requirements of the IR35 contract review.

All LawBite lawyers are UK qualified, insured, regulated and experienced in small business legal matters, so you can rest assured that you are getting the best advice for your SME. Find out more about the other legal and business contracts we can review for your business.

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Alla Fairbrother is an experienced and effective solicitor with clear business focus and many years of legal expertise supporting businesses of various sizes and industries.

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Frequently asked questions

LawBite is the modern way for SMEs to get the high quality legal advice they need, but faster and cheaper.

As we look to revolutionise the traditional legal process, this may raise a number of questions on how we operate to provide your business with legal advice for your business that is; easier to access, clearer to understand and more affordable.

We have brought together the most frequently asked questions from our customers.

The IR35 rules are otherwise known as the Off-Payroll Working Rules. They apply to individuals who provide services to a company through an intermediary (normally a personal service company).
These individuals are often called ‘disguised employees’ and ensure that those individuals pay the same income tax and national insurance as regular employees.

Yes, and it currently impacts the private sector. The changes to IR35 will impact large and medium private organisations, which is any business which meets two or more of the following criteria:

  • Annual turnover is more than £10.2 million
  • Balance sheet total is more than £5.1 million
  • More than 50 employees

IR35 was introduced to tackle the problem of ‘disguised employees’, who weren’t paying the correct level of tax.

Not necessarily – if you are a legitimate contractor, with multiple clients and you are genuinely a service provider for an organisation, then the IR35 rules likely will not apply to you, and you can still operate as a contractor.

If you are a contractor that operates through a limited company, for only one client, or you are, in reality, an employee of your client, you will likely to be treated as an employee for tax purposes. This means that your client will have to start holding back income tax and national insurance from your fee.

Umbrella companies do not ‘solve the IR35 problem’. If you work as an employee for an umbrella company, you will be treated as an employee, and will pay income tax and national insurance at the source.
If you work through your own limited company, via an umbrella company, but you fall within the IR35 rules, you will also be treated as an employee, and taxed accordingly.

HMRC carries out 250 new IR35 investigations in every tax year. They can investigate anyone, and do so on a risk-based assessment.

If you do not pay tax as an employee, but are within the scope of the IR35 rules, the penalty is 30% of unpaid tax, for a careless error. For deliberate errors, the penalty is 70% of unpaid tax. The penalty is 100% of unpaid tax if you knew you were inside IR35, deliberately did not calculate the right tax, and tried to cover up the underpayment. 

In order to avoid the risk of penalties, we recommend undertaking an IR35 contract check to ensure that your contracts are legally valid.

HMRC has made available a useful survey which can help you determine whether you or your contractors fall within IR35: https://www.gov.uk/guidance/check-employment-status-for-tax

The IR35 rules are already effective, but the responsibility for making sure the individual is paying the correct tax lies with the individual. However, from 6 April 2020, the responsibility will be on the client company to decide whether the IR35 rules apply.

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