IR35, Employment and Self-Employment
Instead of engaging individuals to carry out work as employees – by giving them an employment contract, operating PAYE, and deducting tax and NI from the amounts it pays them - many businesses engage some or all of their workers in a different way.
In some cases it will suit the business and/or the individual worker if the worker is not engaged as and does not work as an employee but instead on some other basis, for example:
· as a self-employed person who contracts with the business personally; or
· through his/her own intermediary personal service company (“PSC”) which contracts with the business - PSCs are explained below; or
· through one or more other intermediary companies. Such intermediaries might be “umbrella” companies or they might be agencies who provide individual workers to businesses.
It might be difficult or confusing for the individual worker and the business to decide whether the worker should be an employee, self-employed or working through a PSC or other intermediary. It can also be difficult to arrange to implement the chosen means of working in a way which is clearly legally valid and effective. Whether in any particular case an individual worker’s legal status is that of employee or instead a self-employed person is a key tax and employment law issue.
Further information at Employment and Self-Employment.
If the worker is using a PSC then the situation is further complicated since IR35 rules (tax anti-avoidance legislation) might apply to the engagement of a PSC by a business.
Further information at What is IR35? What is a Personal Service Company (PSC)? This incorporates the changes to the IR35 rules effective since 6 April 2021 (but the changes do not have any retrospective effect).
The following downloadable documents help identify and clarify self-employed status:
Guidance Note on Employment, Self-employment, and IR35
Employment, Self-employment and IR35 Checklists
IR35 Status Determination Statement
The contractual templates available to download are divided into 2 groups:
Sole traders contracting personally - Self-Employment and Freelancer Contracts
Self-employed using a PSC - IR35 And Other Company Agreements
The use of suitable agreements will help spell out the relationship that you intend to create between the parties. However, even where that relationship is stated to be a contract for services relationship either between a worker and a business or between a worker’s PSC and a business, there will still be a risk that an employer-employee relationship (for employment law or tax purposes) might exist between the parties.
It is always advisable to take relevant legal advice as necessary on your particular circumstances before making any decisions, taking any action, or using any of the various template agreements in relation to engaging an individual or a PSC or other company to provide any services to a business.