IR35 Compliance

IR35 — formally the off-payroll working rules under Chapter 10, ITEPA 2003 — determines whether a contractor working through a limited company should be taxed as a deemed employee for a specific engagement. The three primary tests established through case law and codified in HMRC guidance are: control (does the client direct how, when, and where work is done?), substitution (can the contractor send a substitute without the client's approval?), and mutuality of obligation (is the client obliged to offer work, and the contractor obliged to accept it?). A specialist Harrow accountant maps your actual working arrangements against each test and produces a written determination with supporting evidence.

The April 2021 private sector reform shifted the IR35 determination responsibility from contractors to their end clients for medium and large businesses (as defined under the Companies Act 2006 balance sheet and employee tests). End clients must now issue a Status Determination Statement (SDS) before work begins. Harrow contractors serving City banks, major consultancies, and NHS trusts have all been affected. A specialist accountant can review an SDS received from a client, advise on whether the determination is correct, and initiate the client-led disagreement process (under Regulation 22A, SI 2003/2682) where it is not.

Inside-IR35 is not automatically a disaster — but it requires correct tax handling. Inside-IR35 income must be processed through a deemed payment calculation, with PAYE tax and National Insurance deducted before reaching the contractor's company. The company then pays corporation tax on retained profits that have already been taxed through PAYE. Understanding how to manage the offset of employer NI against the corporation tax computation, and how to handle pension contributions inside an inside-IR35 structure, can meaningfully reduce the overall tax burden even in caught engagements.