IR35 is the common name for the UK tax rules that decide whether a contractor working through their own limited company is, for tax purposes, genuinely in business on their own account or is effectively a disguised employee of the client they work for. Where the rules bite, the income from that engagement is taxed broadly like employment income rather than as company profit drawn through salary and dividends.
The label "IR35" is used loosely to cover the whole topic, but it actually spans two separate sets of rules in Part 2 of the Income Tax (Earnings and Pensions) Act 2003. The original intermediaries legislation sits in Chapter 8 (in force since 6 April 2000), under which the contractor's own personal service company (PSC) assesses status and accounts for any tax due. The newer off-payroll working rules sit in Chapter 10, under which the end client determines status and the fee-payer deducts tax before paying the PSC.
Which chapter applies turns on the size of the end client. If the client is small (or wholly overseas with no UK connection), Chapter 10 does not apply and the PSC stays responsible under Chapter 8. If the client is medium or large, Chapter 10 applies and responsibility shifts to the client and fee-payer. See the small company exemption for the thresholds.
An engagement is either inside IR35 (taxed as employment) or outside IR35 (the PSC retains its profit-extraction freedom). Status is decided by the multi-factorial case-law test covering control, substitution and mutuality of obligation, with the whole picture governing. For a fuller introduction see our IR35 basics guides.