IR35, also known as Intermediaries Legislation, is a set of rules put in place in 2000 by Her Majesty’s Revenue and Customs (HMRC). It determines how much tax a contractor should pay on their earnings in certain contracts.

IR35 rules can apply if a contractor (or worker) provides their services through their own limited company or another type of intermediary to a client. The client is the organisation who is or will be receiving the services of a contractor - they may also be known as the engager, hirer or end client.

Why was IR35 introduced?

The rules were introduced to try to stop ‘disguised employment’. This is where a contractor is paid through a limited company, taking advantage of the tax efficiencies, when they are essentially working as a PAYE employee.

This kind of arrangement is unfair for employees on the payroll, who end up paying more tax than the contractor. It's also unfair on the government, which will receive less tax from the contractor, despite them essentially being an employed member of staff.

IR35 aimed to make sure everyone was contributing fairly, however the rules are not totally clean-cut. There might be cases where a contractor innocently begins working with a client but over time effectively becomes an employee. So, if the contractor finds themselves becoming an integral part of the client’s business -  regularly attending employee events or using the client’s tools and equipment - they might fall inside IR35.

How do I know if IR35 applies to me?

The rules are stipulated by HMRC and apply anywhere classed as the United Kingdom - England, Wales, Scotland and Northern Ireland.

The criteria for determining IR35 status can be extremely complex. We’ve summarised some of the most common points below.


This covers things like whether the client stipulates your days of work or start and finish times, to what extent they supervise your work, and whether you have autonomy over details such as lunch breaks and where the work takes place.


An employee can't send someone else into work to do the job on their behalf. However, as a contractor, you should be able to get another person with the same skills to carry out your work at any point during a contract period. This is called ‘the right of substitution’.

Mutuality of obligation

Your contract could fall inside IR35 if it states either of the following:

  • you must work exclusively with this one client, or your client has a say in whether you take on other contracts
  • you work a set number of hours a week for a set amount of money on an ongoing basis, without stipulating the kind of work that will be carried out

Carrying financial risk

If your contract sets out a set level of guaranteed work on a regular basis and there is little financial risk involved, this could fall inside IR35. 

Conversely, if you’re rectifying mistakes or carrying out amends at your own expense, this is a clear sign that you're outside IR35.

In short, if the contract could potentially end up costing you money, then you're outside of IR35.

Provision of equipment

As a contractor, it's generally expected that you will use and supply your own tools or equipment. If you find you’re using the client’s equipment all the time, it might be a sign of work that falls inside IR35.

This element of the legislation is particularly open to debate, with many contractors arguing that even on a limited contract, they still need to use the client’s equipment.

Part and parcel

If it looks to HMRC like you've become part of the client's organisation, for example if you regularly attend staff events or receive some of the same employee benefits as permanent workers, it may be seen as an indicator of employment. The lines can get blurred here as many things might fall under ‘staff events’ or ‘employee benefits’. Broadly speaking, while going for a drink with colleagues would probably be acceptable, being given staff discount or attending several award events at the client’s expense probably would not.

Who is responsible for determining IR35 status?

This depends on whether the end client is private sector or public sector.

Public sector

For public sector contracts, the responsibility of determining a contract’s IR35 status falls with the end client (either the contracting organisation or recruitment agency if they issue payment), rather than the contractor themselves. If the end client decides the contract is outside IR35, the contractor can continue to operate as normal via their limited company. However, if it’s determined the assignment falls inside IR35, the fee payer must make PAYE tax and National Insurance deductions on 100% of the income.

Private sector

From April 2021, in most private sector situations, the responsibility for determining a contract 's IR35 status moved from the contractor to the end client, in line with the public sector. The private sector includes third sector organisations, such as some charities.

However, these changes don’t apply to what HMRC deems to be small companies. A small company is one that meets two of the following criteria:

  • annual turnover of less than £10.2 million
  • balance sheet of less than £5.1 million
  • fewer than 50 employees

If the end client fits the small company definition, it remains the responsibility of the contractor (counsellor or therapist) to determine if the contract falls inside IR35.

IR35 and the self-employed

The off payroll working rules only apply to those who are working like employees under the current employment status tests, and not to the self-employed.

People who operate their own business structure and do not work in the same way as an employee, for example have their own business premises, employ other workers or work for a wide range of clients, continue to be outside of the scope of the off payroll working rules.

General advice

  • Ensure that your contracts accurately reflect the project or body of work you are engaged to work on.
  • Make sure your client treats you as an independent contractor and not simply an extension of their workforce.
  • Invest in your company by supplying your own tools and equipment for the work you undertake. You should also undertake and pay for professional training to ensure your skills are up to date and applicable for the market in which you work.
  • Demonstrate that you're treated differently from your client’s employees - both in terms of the services you provide and how you perform them. Different pay and benefits will not be enough on their own. Flexible working, assignments for other clients, investing in your own training, development and equipment, working on a specific package of work for a fixed fee or a fixed period are all good ways of showing you're truly independent.
  • Provide a substitute as this will provide you with unequivocal evidence that you're not obliged to offer a service and so cannot be a disguised employee.
  • Include a substitution clause within your contract that tells your clients of your right to provide an alternative person or persons to carry out the work you've been contracted to do. For substitution to be considered genuine, the limited company must remain liable for all costs associated with the substitute.
  • Work for multiple clients to demonstrate that you're in business on your own account. The more clients you work for, the easier it is to demonstrate that you are self-employed, whereas only having one client as your sole source of income for a lengthy period may suggest you're employed by the end client.