IR35 is a tax legislation in the United Kingdom that was introduced in 2000 to address the issue of tax avoidance by workers who provide services to clients through intermediaries, such as personal service companies (PSCs), but who would be considered employees if they were engaged directly. The purpose of IR35 is to ensure that these workers pay the same taxes as employees, including income tax and National Insurance contributions.
IR35 is a UK tax law that aims to prevent people who work for clients through companies, like personal service companies, from avoiding paying their fair share of taxes like income tax and National Insurance. This law ensures that these workers pay the same taxes as regular employees would.

How does IR35 work?
IR35 assesses the relationship between a worker and a client to determine whether the worker is an employee or a self-employed contractor. The criteria used to determine this include control, supervision, and financial risk.
If a worker is considered an employee under IR35, they must pay the same taxes as an employee, which can significantly reduce their take-home pay.
Who is affected by IR35?
IR35 affects workers who provide services through intermediaries, such as personal service companies (PSCs), and clients who engage workers through these intermediaries. The legislation applies to both public-sector and private-sector clients.
Is IR35 just for UK? IR35 does not apply to those who are self-employed or work through their own limited companies and are not involved in intermediary work. Additionally, IR35 only applies to companies operating within the UK and not to foreign companies operating within the country.
Not all companies are subject to IR35, as it depends on the nature of the worker’s roles and their working arrangements. Companies of all sizes are affected by IR35, whether small businesses or large corporations. The legislation applies equally to all companies, regardless of size.

How does IR35 impact workers and clients?
IR35 can significantly impact workers who are considered employees under the legislation. These workers may face reduced take-home pay due to paying the same taxes as employees.
Clients who engage workers through intermediaries may also face additional administrative responsibilities, costs, and a potential shortage of available workers who provide services through intermediaries.
What is IR 35 Final Thoughts
In conclusion, IR35 is a complex piece of legislation that affects contractors and freelancers who provide services to clients in the UK. Understanding IR35 and your obligations under this legislation is crucial to ensure that you comply with the law and avoid costly penalties.
Recent developments have brought about some significant changes to the legislation, prompting many to ask, “Has IR35 been scrapped?“. Our latest article takes a deep dive into the 2023 updates and implications of IR35, providing an essential read for those wanting to stay on top of these changes.
As a contractor or freelancer, it is important to protect yourself from potential losses or damages caused by mistakes or errors in your work by taking out indemnity insurance. Whether you need general or professional liability, insurance will depend on the nature of your work and the specific risks you face.
Finally, when taking out an indemnity policy, it is important to carefully review the terms and conditions of the policy to ensure that it provides adequate coverage and to seek professional advice if necessary.
Overall, IR35 and indemnity insurance are crucial considerations for contractors and freelancers, and taking the time to understand your obligations and protect yourself is essential.

FAQ
Who has liability for IR35?
The liability for IR35 falls on both the worker and the client. The worker must pay the same taxes as an employee if they are considered an employee under IR35. The client must ensure that they engage workers promptly and may face financial penalties if non-compliant.
In addition, if a worker is considered an employee under IR35, the client is responsible for making the employer’s National Insurance contributions.
How can I avoid getting caught by IR35?
To avoid getting caught by IR35, it is important to clearly understand the legislation and the criteria used to determine whether a worker is an employee or a self-employed contractor.
Workers should ensure that their contracts and working arrangements reflect the reality of their relationship with the client. Clients should seek professional advice to ensure that they engage workers in a compliant manner and consider using an umbrella company or payroll solution.
How do I protect myself as a subcontractor?
As a subcontractor, it is important to clearly understand your rights and responsibilities, including your tax obligations. You should ensure that your contract accurately reflects the nature of your working arrangement with the client and seek professional advice if you have any concerns.
You may also consider taking out insurance to protect yourself, such as professional indemnity insurance.
What insurance should my subcontractors have?
The insurance that your subcontractors should have depends on the nature of their work. However, it is generally a good idea for subcontractors to have public liability insurance and professional indemnity insurance.
Public liability insurance covers the subcontractor if they cause damage to third-party property or injury to third-party individuals. In contrast, professional indemnity insurance covers them if they make a mistake.
What insurance does a contractor need in the UK?
The insurance that a contractor needs in the UK depends on the nature of their work. However, it is generally a good idea for contractors to have public liability insurance and professional indemnity insurance.
Public liability insurance protects a contractor from any damage they may cause to other people’s property or if they harm someone. On the other hand, professional indemnity insurance will help if they make a mistake while working.
What is a simple example of indemnity?
An example of indemnity is when a contractor agrees to reimburse a client for any losses or damages that the client incurs due to the contractor’s negligence or mistake. For example, if a contractor damages a client’s property while working, the contractor may agree to indemnify the client by paying for repairs.
Another easy example of indemnity is when a company agrees to repay a customer for any charges or fees incurred due to the company’s mistake.
For example, suppose a customer is charged a late fee on their credit card due to a processing error by the company. In that case, the company may agree to indemnify the customer by reimbursing them for the late fee.
Why is an indemnity better than a breach of contract?
An indemnity provides a more direct and immediate remedy for losses or damages incurred as a result of a breach of contract or mistake. It allows the affected party to recover their losses without going through a lengthy court process to prove a breach of contract.
An indemnity also provides stronger protection for the affected party, as it places the financial responsibility for the losses or damages on the party providing the indemnity.
What are the three methods of indemnity?
The three methods of indemnity are:
Express Indemnity: A specific agreement in a contract that outlines the indemnity terms.
Implied Indemnity: An indemnity that is not explicitly stated in a contract but implied by the contract’s circumstances.
Statutory Indemnity: An indemnity imposed by law, such as the Consumer Rights Act 2015, which requires traders to compensate consumers for losses from defective goods.
What happens if you don’t have an indemnity?
If you don’t have an indemnity, you may not have a remedy for losses or damages incurred due to a breach of contract or mistake. You may have to go through a lengthy court process to prove a breach of contract and recover your losses, which can be time-consuming and expensive.
Can I arrange my own indemnity insurance?
Yes, you can arrange your own indemnity insurance by contacting an insurance provider and taking out a policy that covers the specific indemnity you require. It is important to carefully review the policy’s terms and conditions to ensure adequate coverage.
How quickly can you get an indemnity policy?
The time to get an indemnity policy depends on the insurance provider and the type of policy you require. Some insurance providers may offer instant online quotes and coverage, while others may require a more detailed application process that takes several days or weeks.
Do I need both general liability and professional liability?
Whether you need both general and professional liability insurance depends on the nature of your work and the specific risks you face.
General liability insurance covers you for damages or losses caused to third-party property or individuals, while professional liability insurance covers you for mistakes or errors made in your work.
If you provide a service that has the potential to cause damage to third-party property or individuals, you may need both types of insurance.
Do all contractors need professional indemnity insurance?
Not all contractors need professional indemnity insurance, but it is a good idea for contractors who provide professional services to have this type of insurance. This is because professional indemnity insurance covers them for mistakes or errors in their work, which can be a significant risk for contractors who provide consulting, design, or technology services.
How much does an indemnity policy cost in the UK?
The cost of an indemnity policy in the UK depends on several factors, including the type of policy, the amount of coverage, and the specific risks you face. Some insurance providers may offer policies starting from as little as £5 per month, while others may charge several hundred pounds per year.
Who should pay for indemnity?
The party providing the indemnity is typically responsible for paying for the indemnity insurance. However, in some cases, the insurance cost may be split between the two parties, with each party paying a portion of the premium.
How do I know if I need professional indemnity insurance?
You may need professional indemnity insurance if you provide a professional service that can potentially cause damage or losses to clients due to mistakes or errors in your work. This is especially important for contractors who provide services such as consulting, design, or technology services.
Who needs professional indemnity in the UK?
In the UK, professional indemnity insurance is typically required for professionals who provide services that can potentially cause damage or losses to clients due to mistakes or errors in their work.
This includes contractors who provide services such as consulting, design, or technology services, as well as professionals such as accountants, architects, and solicitors.

Key points on IR35
- IR35 is a tax legislation that applies to individuals who provide services to clients through a limited company but would have been considered an employee if they were engaged directly.
- The responsibility for determining IR35 status lies with the end client/fee-payer if you provide services to a client in the public sector or to a medium or large company in the private sector from 6th April 2021.
- Determining whether or not you are inside or outside IR35 depends on the details and circumstances of your assignment and how you work.
- Two ways to mitigate risk are by purchasing insurance and through supplier contracts.
- Professional Indemnity Insurance, which supports your independent status, is often required by clients.
- Indemnity insurance is a type of insurance that compensates the insured for any damages or losses incurred and is commonly used in insurance contracts.
- Indemnity insurance costs typically range from £20 to £300 and must be arranged through a solicitor or conveyancer.
- You may need professional indemnity insurance if you provide professional services such as advice or designs to clients, and some professions are required to have it by their regulatory bodies.