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What is IR35?

Written by: Anthony Davies
Published on: 19 Feb 2020



IR35 is not a new concept – the off-payroll working rules have been in place since 2000 and contractors working through their own Professional Services Company (PSC, also commonly referred to as a Limited Company) have been obliged to determine whether IR35 applies to their assignments for the past 20 years.

However, April 2020 sees a significant change in the way in which IR35 is assessed and applied in the Private Sector (the new rules have been in place in the Public Sector since 2017), and this is likely to have a considerable impact on the way in which our clients can engage interim support.


IR35 is the set of rules that govern whether a contractor working through an intermediary (i.e. a PSC) would be classed as an employee if they were engaged directly by a client organisation. This essentially means that, where there is little or no difference between the working practices of the contractor and those of a permanent employee of the company, then the contractor would be liable for payment of employee taxes and National Insurance contributions (NICs).

Under current rules it is the contractor who makes this determination (i.e. that IR35 does not apply) for each assignment. From 6 April 2020 this is changing, and the determination will be made by the End Hirer (i.e. your organisation).


You will need to consider several facets relating to the specific assignment and the general working practices within your organisation, to establish whether an employment relationship would be in place were it not for the fact that the contractor is working via a PSC.

There are several factors which need to be considered when making a determination; some of these have more weight than others but all are relevant to the decision:

  • Substitution – The PSC has the right, and ability, to provide a qualified substitute if they are not able to carry out work directly, and you agree to the substitution in practice. The PSC will pay any substitute (charging for their services via the usual channel) and you will have the right to refuse a substitution on reasonable grounds (such as lack of relevant experience, security/onboarding processes etc).
  • Control & Direction – PSC contractors should demonstrate a high degree of autonomy in the delivery of services and both the contractual arrangement and actual working practices should be clear on the facts that little or no control or supervision takes place (i.e. that the contractor are free to determine and control how and when they provide the services).
  • Financial Risk – Accepting responsibility for delivery of the assignment is important and a contractor will be expected to ‘make good’ on any errors or poor-quality services at their own cost (i.e. they will not be paid for ‘fixing’ an error).
  • Mutuality of Obligation – In an employment relationship it is expected that the employer is obliged to provide work and the employee is obliged to complete this work. A PSC should only be required to deliver specific project deliverables and have no obligation to carry out any additional work (for example, covering for another employee), except where agreed under a separate contractual arrangement. 
  • Other Factors – A range of other factors should be taken under considerations when making a determination. Use of company equipment or IT infrastructure (including email), absence reporting, notice periods, use of employee-only facilities and attendance of employee events may all contribute to an ‘inside IR35’ assessment.


You are required to take reasonable care in reaching a decision regarding IR35 status. You also need to communicate your specific decisions to the relevant agency.

In order to make a determination, you need to consider the following, as a minimum:

  • Is the assignment covering a ‘business as usual’ position, for example a maternity cover?
  • Do you expect to exercise supervision of the contractor, including directing them as to the methodology around how they perform the contracted services?
  • Is there a set end date to the assignment/project?
  • Will the contractor have line management responsibilities for any individuals within your organisation?
  • Will you provide training (excluding any standard orientation, Health and Safety, or other legally required training) to the contractor?
  • If the contractor was personally unavailable to deliver part of their contracted assignment, would you allow them the right to provide a substitute worker of equivalent skill, qualification and experience?
  • Will the contractor be expected to rectify any sub-standard work at their own cost and in their own time?
  • Will you require the contractor to complete additional tasks not specifically covered in the initial contracted assignment, as required by your organisation from time to time?
  • Will the contractor receive employment-related perks and benefits (as a permanent employee of your organisation would)?
  • Will you require the contractor to provide their own business insurance and/or equipment?
  • Will the contractor be identifiable within your organisation as an independent contractor? This could include wearing a visitor badge, including 'contractor' in their email signature, or being excluded from general company meetings/events.
  • Do you expect the contractor to provide extended notice of termination if they are to cease working on an assignment?

Should you make a provisional determination that the role falls ‘outside’ of IR35 then we will use an online assessment tool provided by Qdos to confirm the determination. The Qdos tool operates in much the same way as HMRC’s Check employment status for tax (CEST) tool but also takes tax case law rulings into consideration to achieve a more ‘real-world’ decision. We will provide the relevant administration, as well as covering the cost of assessment.



There are significant benefits to continuing to engage PSCs to deliver services to your company – many PSCs have very specialist skills and experience that will enhance the delivery of a project. We therefore recommend that you assess every assignment on its own merit, to determine whether it falls outside of IR35 or not.

If this is not feasible for you, you can engage the individual on a PAYE basis, and we will make all statutory tax deductions on your behalf. This may increase your interim workforce costs but allows you to continue to benefit from an agile, flexible workforce.

You can also take advantage of fixed-term contracts to deliver projects. In this scenario, you engage the individual on an employment contract of defined length, for example six months, and payroll them directly (with all statutory deductions made as standard). This is the best way to deal with resourcing for existing roles, such as maternity cover.


Further information:

To discuss this article further, please contact Anthony Davies using the contact information below.


Anthony Davies
Operations & Client Services Director
T: + 44 (0)20 7415 0050
D: + 44 (0)20 7332 2487
A: 95 Queen Victoria Street, London, EC4V 4HN