IR35 glossary: 25 key off-payroll working terms, unpacked

For contractors, understanding the complexities of IR35 legislation can be a minefield.

With so many different terms to digest, it can feel like deciphering a foreign language!

Luckily, we’re all about making IR35 simple to understand, writes Nigel Nordone, head of tax at IR35 contract review firm Qdos.

In this guide, exclusively for ContractorUK, we’ll unpack 25 off-payroll working terms which contractors commonly encounter when navigating the Intermediaries legislation or the OPW rules; a sort of IR35 glossary.

1. Blanket determinations (aka blanketing)

A IR35 status decision by an organisation that affects all contractors they engage, regardless of those contractors’ individual circumstances.

2. CEST

The ‘Check Employment Status for Tax’ tool provided by HMRC, designed to help contractors determine their own IR35 status for tax purposes. We believe the tool can be unreliable.

3. Confirmation of Arrangements

A document that seeks to obtain an agreement regarding the true nature of a working relationship between a contractor and end-client, and sets out the day-to-day working

practices. A CoA can be helpful to cement an outside IR35 position.

4. Contractual chain

The group of entities involved in the supply of a worker to an engager.

Sometimes referred to as a ‘Supply Chain.’

5. Deemed salary

Income paid to a contractor from their limited company relative to the ‘would-be’ received income of an employed worker fulfilling the same role.

6. Disguised employee

A contractor who would essentially be considered an employee if not for their engagement via the limited company, i.e., working inside IR35.

7. End client/engager

The company/organisation that the contract is ultimately fulfilled for.

8. Fee-payer

The party in the contractual chain that is responsible for paying the limited company contractor directly. Typically, the recruitment agency is the fee-payer.

9. Inside IR35

A term to describe an engagement that is more similar to employment for tax purposes than self-employment, meaning PAYE/NIC deductions are due on the income received.

If you are ‘inside IR35,’ you are ‘caught’ by the Intermediaries legislation.

10. Intermediaries legislation

Another term for IR35, and specifically the legislation which was introduced in the UK in the year 2000.

11. IR35

The common term used for the Intermediaries Legislation.

The term derives from the press release issued by the then Inland Revenue.

12. IR35 reform(s)

Changes made to IR35 on April 6th 2017 in the public sector and April 6th 2021 in the private sector, which shifted the responsibility for determining the employment status of contractors from the contractors themselves to the end clients or hirers.

13. Limited company contractor

A form of self-employment where the worker is usually both the director and the principle

fee-earner of a private business, where the company owner’s debt responsibility is restricted solely to the amount invested.

14. Mutuality of Obligation (MoO)

The obligation of the client to offer work and the contractor to accept the work.

Mutuality (as it’s also known) or MoO is one of the key factors used to determine whether a contractor is inside or outside IR35.

15. Off-Payroll Working (OPW) rules

Part of legislation (Chapter 10, Part 2 ITEPA 2003) in which the end client/agency will hold the responsibility and liability for assessing employment status for their off-payroll workers. It’s the framework meant by the term IR35 reform.

16. Outside IR35

An engagement that reflects genuine self-employment, which is not ‘caught’ by the Intermediaries legislation.

17. Outsourced service/Managed service provider

An end-client/end-user engaging a consultancy to provide a fully managed service.

The outsourced service providers may engage limited company contractors to fulfil the services. This can either be a genuine service provision or provision of labour.

18. Personal Service Company (PSC)

While there is no clear definition of a Personal Service Company (PSC), it can be loosely defined as a company that predominantly sells the services of individual(s) who are also owners/directors of the PSC.

19. Status Determination Statement (SDS)

A document that outlines a client’s decision on the employment status of a contractor for tax purposes.

20. Status tests /factors

Criteria established through case law used to determine the employment status of an individual contractor falls inside or outside IR35.

21. Small company exemption

A provision that exempts small business clients from end-client responsibilities under the private sector OPW rules.

If a company is considered “small” according to the Companies Act 2006, it is not required to apply IR35 rules to engagements with contractors operating through intermediaries. Instead, the contractor is responsible.

22. Substitute

The ability of a contractor to send an equally skilled person to do their work on behalf of their limited company, and one of the key factors used to determine whether a contractor is operating outside IR35, indicating a self-employed status.

23. Statement of Work

A Statement of Work (or SOW, or SoW) is a document which details the specifics of a piece of outsourced work.

It forms part of a managed service agreement between two parties (usually the end-user and the supplier such as a consultancy business) for a specific project and is

accompanied by a Master Services Agreement.

24. Umbrella company

An intermediary which acts as an employer for contract workers in exchange for a fee.

The umbrella company takes responsibility for timesheets, holiday, and sick pay for the worker, while the worker maintains the flexibility of contract work.

25. Upper/Lower-level contract

If there is an agency in the chain, each party in the contractual chain will have an

agreement. The upper-level contract is the written agreement between the agency

and the end-client, and the lower-level contract is the written agreement between the

agency and the contractor.

Finally, that's not all folks!

There's lots more IR35 terms to be aware of, of course! 'Control,' for example, speaks to whether you're supervised or directed in and around the work you carry out for the end-user, and it's arguably the most determinative IR35 status factor of them all.

But whether you’re just beginning to learn about IR35, or are veteran, hopefully this unpacking of 25 key but opaque OPW terms into easy-to-understand explanations will serve you well, as an IR35 survival kit or just a handy point of reference. Good luck!