In brief, what is IR35?
Since April 2000, anyone who is working via an intermediary, such as a company or partnership, will be caught by new rules if they fail the ‘IR35 test’. This test determines whether the person would be an employee if they were contracting directly with the ‘client’, rather than using an intermediary. If they are treated as being an ‘employee’, they will be caught by IR35 legislation. As such, the majority of their contract earnings will be taxed as though they are an employee.
How will we know if a client or potential client is caught by IR35?
The test is to determine whether or not the worker is effectively an employee. In order to decide this, a number of factors need to be considered.

Important factors will include:
Is the worker at financial risk in the project?
Can he make losses as well as profits?
Can he make more money if he does the job well?
Can he hire his own workers or provide substitutes for the job instead of himself?
Can he control his work? This can encompass where he works, when he works, what he does and how he does it.
The intention of the parties
The length of the contract
The pay structure e.g. holiday pay
The number of engagements the worker has.
At the end of the day, it is the over-all picture that matters and whatever the contract says, the reality of the situation takes precedence.