Anti-avoidance rules: “IR35”

By Tolley

The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Anti-avoidance rules: “IR35”
  • Scope of the rules
  • Company as intermediary
  • The notional contract
  • Case law on IR35 and PSCs
  • The calculation
  • Payment to the individual

Many people supply their services to clients, not directly as an employee of theclient nor as a self-employed person, but via a company. The tax and NIC advantages of this way of working are significant. See thePersonal service companies overview guidance note.

Anti-avoidance legislation, known as ‘IR35’, catches individuals who would be employees or office-holders of their clients if they did not use a service company but were under thesame contractual terms. See theEstablishing employment status guidance note.

Separate legislation exists for tax and NIC. In most cases, both sets of legislation produce thesame outcome, but not invariably. See theParticular NIC points guidance note for more information.

ITEPA 2003, ss 48–61; SSCBA 1992, s 4A; Social Security Contributions (Intermediaries) Regulations 2000, SI 2000/727
Scope of therules

To be within IR35:

  • there must be an engagement for personal services where theservices are provided to another person (‘the client’)
  • the client must not be a public sector body (in which case thespecial rules for service companies and thepublic sector may apply instead)
  • the circumstances are such that theworker would be regarded as an employee or an office-holder of theclient but for theinterposition of at least one intermediary (usually a company) between theworker and theclient, or theworker is an office-holder of theclient and theservices relate to that office
  • the intermediary must meet certain defined conditions (see below)
  • the worker must either receive, or have theright to receive, a payment or benefit from theintermediary which is not employment income

ITEPA 2003, s 49

Contracts which fall within IR35 are called ‘relevant engagements’ in thelegislation.

Engagements for the

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