This is a term used for a complex piece of anti-avoidance legislation introduced in 1999 that applies when a freelance working individual uses an “intermediary” normally a limited company to carry out his/her business. The legislation seeks to look through the company and establish whether the engagement between the individual and the end user is on an employed or self-employed basis.
IR35 will apply to an individual who provides services through a limited company in which they own 5% or more of the shares or via a partnership in which they take more than 60% of the fees.
If the engagement is found to be one of employment and therefore caught under the IR35 provisions, all income arising, less a 5% fixed deduction, must be paid out as salary and subjected to full PAYE tax and national insurance compliance.
Determining the precise status of a particular engagement is difficult and both the working practices and the relevant contracts will be reviewed in detail.
If your are caught under the IR35 provisions the downside is enormous and it is vital that you obtain advice before you proceed in any business activity in this area.