What is IR35? A Complete Guide for 2024/2025

IR35 (also known as the "Intermediaries Legislation" is a UK tax law designed to prevent tax avoidance by contractors who work like employees but bill through intermediaries (e.g., Personal Service Companies, or PSCs) to reduce tax liabilities.

Since its introduction in 2000, IR35 has undergone major reforms—shifting responsibility for compliance from contractors to employers in the public sector (2017) and private sector (2021).

How Does IR35 Work?

IR35 determines whether a contractor is a genuine self-employed worker (outside IR35) or a disguised employee (inside IR35).

Key Factors HMRC Considers:

✔Control – Does the client dictate how, when, and where the work is done?
✔Substitution – Can the contractor send a replacement?
✔Mutuality of Obligation – Is the client obliged to offer work, and is the contractor obliged to accept it?

Who is Responsible for IR35 Compliance?

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IR35 Changes in 2024/2025

• No major legislative changes, but HMRC is increasing enforcement.

• More tribunal casesshaping IR35 case law (e.g., recent rulings on "part and parcel" employment).

• CEST Tool Updates– Still controversial; professional assessments are recommended.

What Happens If You Get IR35 Wrong?

• Financial Penalties– Back taxes, interest, and fines (up to 100% of owed amounts).

• Reputational Damage– HMRC can name businesses in deliberate defaulters' lists.

• Contractor Disputes– Status disagreements can lead to delays and legal costs.

How to Stay Compliant

• Use HMRC’s CEST Tool(but verify with expert advice).

• Review Contracts & Working Practices– Ensure they reflect true self-employment.

• Keep Detailed Records– Document status determinations (SDS) and disputes.

• Train HR & Hiring Managers– Misclassification is a common pitfall.

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