IR35: Let’s Break it Down

IR35 – What it actually is:

Forbes have asked if IR35 means the end to freelancing as we know it. There’s been a lot of discussion about it in some circles, but eerily little press coverage. The “IR” refers to “Intermediary Regulations”, which means the policies apply to workers operating through 3rd party operators, such as personal service companies, umbrella companies or recruitment consultancies.

Essentially, IR35 is a 20-year old piece of legislation which has been gradually rolled out since April 2000. The legislation was written in 1999, published in 2000, made effective in the public sector in 2017, and now it’s coming to the private sector in 2020. Why the 2-decade rollout? See The Boiling Frog Analogy for more details.

What’s a Personal Services Company?

An individual may choose to set up their own Limited Company instead of working as an employee.

There are certain tax benefits to this, so the incentive to set up these companies and work through them instead of getting paid through a payroll are significant.

This is where the “intermediaries” term comes from. In the top line of the diagram below, you have an employee being paid directly by the employer.

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