IR35 (UK off-payroll working rules)

IR35 — the UK’s off-payroll working rules — tests whether someone providing services through their own limited company (a PSC, personal service company) is genuinely in business on their own account, or is in substance an employee of the client. If the engagement is “inside IR35,” it must be taxed broadly like employment (PAYE income tax and National Insurance), removing the tax advantage of the company structure. It is the UK’s version of the worldwide misclassification question.

Who decides, and who’s liable

Since the 2017 (public sector) and 2021 (private sector) reforms, for medium and large clients the client — not the contractor — determines status and issues a Status Determination Statement, and the fee-payer is liable for the tax if it gets it wrong. Small companies are exempt (the contractor’s PSC still assesses). A US or other foreign company engaging a UK contractor should know the status question sits with the engager once it’s above the small-company thresholds.

The tests and the alternatives

Status turns on the familiar factors — control, personal service / right of substitution, and mutuality of obligation — substance over the contract label. Common ways UK contractors and their clients handle it:

• Genuinely outside-IR35 B2B engagements (real autonomy, own clients, substitution right).
• An umbrella company, which employs the contractor and runs PAYE — the standard route for inside-IR35 work.
• Employment via an Employer of Record where the relationship is really a job.