When a contractor is classed as an employee for tax purposes, they are said to be “Inside IR35.” This means they are required to pay the same Income Tax and National Insurance contributions as a regular employee.
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A contractor who provides services through an intermediary—such as a personal service company (PSC)—may be deemed an employee for tax purposes under the UK’s IR35 legislation. Being “Inside IR35” means that, solely for tax purposes, the individual is treated as an employee of the client organisation.
Who is responsible for determining the IR35 status and paying the appropriate tax and National Insurance contributions (NICs) depends on the size and type of the client organisation. Under the original IR35 rules, the contractor is responsible for assessing their own status and paying the relevant taxes. However, under the more recent reforms, the responsibility shifts to the client—particularly in medium and large businesses, as well as public sector organisations—to determine the contractor’s IR35 status and ensure the correct tax is paid.
