IR35 remains a critical piece of tax legislation for freelancers, contractors, and the businesses that engage them. Since its extension to the private sector in April 2021, the off-payroll working rules continue to shape how contractor relationships are managed - especially for medium and large-sized businesses.
Whether you're an independent contractor, ahiring manager, or an intermediary such as a recruiter or payroll partner, it’s vital to stay up to date on how IR35 applies to your current work setup.
What is IR35?
IR35 is HMRC’s legislation aimed atreducing tax avoidance from ‘disguised employment’. It targets contractors who provide services through an intermediary, such as a Personal Service Company (PSC), but whose working arrangements would otherwise suggest they are employees.
If a contractor is found to fall within IR35, they are deemed employed for tax purposes - meaning Income Tax and National Insurance Contributions (NICs) must be paid accordingly. This also applies to the engaging business, which may bear additional liabilities.
What’s changed – and what still applies?
Since April 6th, 2021, the responsibility for assessing IR35 status and ensuring appropriate deductions shifted away from the contractor. Instead, the "end client" - the organisation receiving the services - must now determine the contractor’s employment status. If a contractor is inside IR35, then the ‘fee-payer’ (often a recruitment agency or umbrella company) must process income tax and NICs before payment.
This applies to medium and large companiesin the private sector. A company is exempt (classified as “small”) if it meets at least two of the following:
- Annual turnover ≤ £10.2 million
- Balance sheet total ≤ £5.1 million
- Fewer than 50 employees
Clients must also take ‘reasonable care’ when determining IR35 status and share a Status Determination Statement (SDS) with both the contractor and the supply chain.
How does it affect you in 2025
Despite the legislation bedding in for over four years, many companies and freelancers continue to face confusion and risk non-compliance. HMRC has been increasingly active in reviewing IR35 assessments and fee-payer obligations - meaning getting your status wrong can lead to penalties.
Furthermore, working patterns post-COVID, with more hybrid and remote contracts, have made IR35 assessments more nuanced, particularly when looking at control, substitution, and mutuality of obligation (the three key pillars of determination).
Questions or need support
If you’re unsure about the IR35 status of your next assignment, whether as a freelancer or hiring manager, reach out to us at talk@majorplayers.co.uk. Let’s take the uncertainty out of compliance.
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