IR35 (off-payroll working rules)
Rules deciding whether a contractor working through their own limited company is effectively an employee for tax purposes — and so should have PAYE and NIC deducted at source.
At a glance
HR- Why it matters
- UK statutory
- Related
- 3 terms
- Walkthroughs
- 3 guides
- Watch out
- Common misconception below
Plain English. UK spelling. No marketing filler.
Why this matters
When IR35 applies (the contractor is "inside IR35"), tax and NIC come off at source as though the contractor were an employee. When it doesn’t ("outside IR35"), the contractor pays themselves through their personal service company in the usual way. Since April 2021, for medium and large clients, it’s the client — not the contractor — who decides the status and bears the liability for getting it wrong. Small clients still let the contractor decide.
How YionStack handles it
The YionStack HR module tracks Status Determination Statements (SDS) per contractor engagement. The SDS records the question-by-question reasoning HMRC’s CEST tool produces, the conclusion (inside or outside IR35), the date issued and the contractor’s response if they appeal. When a contractor is determined inside IR35, the accounts payable workflow flags their bills for payroll processing instead of standard payment — the deemed employment payment runs through the payroll module with PAYE and NIC deducted at source and reported on the FPS like any other employee. Outside-IR35 contractors continue to invoice and get paid as suppliers.
Common misconception
IR35 is not about whether you have your own company
A contractor can run a personal service company and still be outside IR35. The test is about the relationship with the client — control, substitution, mutuality of obligation — not the legal vehicle. YionStack’s SDS workspace walks through the actual HMRC tests, not the company-structure question.
Related terms
Walk me through it
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