The intermediaries legislation, or IR35 as it is better known, is tax avoidance legislation targeting ‘deemed employees’. These are workers supplying their services to clients via an intermediary, such as a limited company, who would be classed as employees under employment law if not for the intermediary, and so should be taxed like employees.
HMRC enforces the rules to determine whether a limited company contractor is a deemed employee for tax purposes. The legislation is notoriously complex. Falling foul of the Act can lead to substantial costs in back taxes, fines and penalties and liability can now be traced to not only the contractor’s limited company, but also the agency or hirer.
On top of this, falling within IR35 tax status means a contractor could suffer a 20% decrease in net take-home pay. It’s no surprise most contractors are reluctant to take on contracts that are caught by IR35.
Until recently, only contractors have been responsible for establishing their IR35 status. However, reforms in the public sector mean that from April 2017:
With private sector changes expected to soon follow, every organisation that engages contractors could soon be affected by IR35.
You can view this guidance on the gov.uk website.
You can view this manual on the gov.uk website.
The intermediaries legislation has been consolidated in both:
In March 2017, legislation was published confirming the changes to the enforcement of IR35 in the public sector:
A contract of service exists if the contractor: “agrees that in the performance of service he will be subject to the other’s control”.
These are the main factors affecting employment status, as per the case law, and their relative weights shown by size. This is a very high level perspective, and there are many nuances with testing status, which is why we ask over a hundred questions when assessing your status.