IR35 - the Intermediaries Legislation came into force in April 2000.
 
Inland Revenue (as it was back then) Bulletin: 35 - hence 'IR35' - was aimed at identifying 'disguised' employees i.e. liable for full PAYE tax and National Insurance.
 
IR35 was essentially a tax measure designed to catch 'disguised employees' who set themselves up in a limited company. The individual's tax liability is significantly reduced as he now pays corporation tax instead of higher rate income tax and national insurance.
 
The main thrust of IR35 is aimed at the so-called 'one-man band' limited company commonly used in the IT, engineering and oil and gas industries.
 

What does it mean for you?

It is the responsibility of every limited company contractor to assess their own status and determine the appropriate method of accounting for tax.
 
A person's tax status is determined by the contractual terms of his working relationship. IR35 simply asks whether the circumstances are such that, had the contract been entered into directly between the worker and the client, those terms would amount to 'disguised employment.'
 
In order to fall outside of IR35, therefore, it would need to be established that the contractual terms do not amount to employment.
 
Three elements must be present for the contract to be one of employment; personal service, mutuality of obligations and control. If any one or more of the three elements is missing, then it cannot be regarded as an employment situation.
 

Summary

It is vital that you are confident that your contractual arrangements fall outside IR35 and that should you be challenged by HMRC that you can sustain the argument that you are in business on your account. It is always advisable to have an independent review of your contract carried out as in the event of an investigation, regardless of the outcome, this shows ‘due diligence’ and will mean that penalties cannot be charged and only unpaid tax / NIC would be due.