IR35—key difficulties and HMRC's approach
IR35—key difficulties and HMRC's approach

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • IR35—key difficulties and HMRC's approach
  • Uncertainty of IR35
  • Unfairness of IR35
  • IR35 helpline and contract review service
  • HMRC guidance—the business entity tests and example scenarios (applicable pre-6 April 2015)
  • Reform of IR35

FORTHCOMING CHANGE: from 6 April 2020, the off-payroll IR35 regime currently applicable to public authorities will be extended to all medium and large private sector entities. For more detail on this extension, see Practice Note: IR35—off-payroll workers.

The intermediaries legislation (more commonly known as 'IR35' after the reference number of the HMRC Press Release announcing the rules in Budget 1999) applies where an individual worker provides services to an end client through an intermediary, such as personal service company (PSC) or partnership, in circumstances where the individual would otherwise:

  1. for income tax purposes, be regarded as an employee or an office-holder of the client, and

  2. for National Insurance contributions (NICs) purposes, be regarded as employed in employed earner's employment by the client

The intention of IR35 is to ensure that the worker's income tax and NICs liability is broadly equivalent to that of an employee, and to impose a PAYE and NICs obligation on the intermediary (ie the PSC).

However, the IR35 regime is problematic in a number of ways, in particular:

  1. it is often far from clear whether arrangements are within or outside the IR35 regime which causes uncertainty for taxpayers

  2. there is a significant risk of HMRC investigation and potential dispute, which can be invasive and burdensome, and extremely costly if an assessment for unpaid PAYE and NICs is