Worker status & pay
What are the off-payroll working rules (IR35)?
The off-payroll working rules, commonly called IR35, determine whether someone providing services through their own company should be taxed as an employee of the client. They decide who assesses status and who bears the risk.
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<img src="https://agencyoptix.co.uk/glossary/off-payroll-working/diagram.svg" alt="off-payroll working — diagram from AgencyOptix" width="880" height="620" loading="lazy">
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<a href="https://agencyoptix.co.uk/glossary/off-payroll-working">What are the off-payroll working rules (IR35)?</a> — diagram by
<a href="https://agencyoptix.co.uk">AgencyOptix</a>
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</figure>The rules turn on a hypothetical question: if the intermediary company were removed, would the relationship between the individual and the client look like employment? That is assessed on the same facts as employment status generally.
Where the responsibility for the determination sits, and where the liability sits if it is wrong, depends on the client's size and sector. For an agency in the chain, this matters commercially as well as legally because liability can move along the chain.
A determination has to be communicated with reasons, and there has to be a route to challenge it. A blanket policy applied to every contractor without individual assessment has been repeatedly criticised and does not discharge the obligation.
What goes wrong in practice
- Blanket determinations applied across a category of contractors with no individual assessment.
- Determinations made and never passed down the chain with their reasons.
- No record of how a conclusion was reached, leaving nothing to defend it with later.
- Assuming the rules are settled at the start of an engagement when the working practices have since changed.