Chris

IR35 is designed to clamp down on disguised employment, which is where a company hires a ‘freelance’ worker to work for them full time for an extended period. The ‘freelancer’ is paid a daily rate and the employer doesn’t handle any tax or NI on their behalf because they have hired a freelancer, rather than employing someone, so what they’re paying is a charge for the services of a business rather than a wage. From this daily rate the freelancer pays themselves a wage plus other business expenses. There are then multiple tax wheezes that they as a freelancer can employ to reduce their personal tax burden.

For freelancers working for multiple clients at any one time it’s quite legitimate for them to operate this way but there is a whole sector where a freelancer will be brought in to one company for maybe even years at a time and it really just becomes one massive tax dodge for both the company hiring them and for the freelancer themselves.

IR35 calls this disguised employment and taxes the freelancer as if they were an employee. This reduces the incentive for workers to seek these arrangements.