Anti-avoidance rules ― off payroll working (IR35)

Produced by Tolley

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

  • Anti-avoidance rules ― off payroll working (IR35)
  • Scope of the rules
  • Intermediary is a company
  • The notional contract
  • Case law on IR35 and PSCs
  • HMRC guidance on IR35 and particular industries
  • The calculation of tax and NIC ― the deemed employment payment
  • Payment to the individual

Anti-avoidance rules ― off payroll working (IR35)

Many people supply their services to clients via a company rather than directly as an employee of the client or as a self-employed person (sole trader). The tax and NIC advantages of this way of working are significant. See the Personal service companies ― overview guidance note.

Anti-avoidance legislation, referred to in the legislation as ‘provision of services through an intermediary’, known widely as ‘IR35’ and generally referred to by HMRC in guidance as ‘off payroll’ or ‘the intermediaries rules’, applies to individuals who would be employees or office-holders of their clients if they did not use a service company but were under the same contractual terms. Note that for the purposes of PAYE, an office-holder is treated as an employee so ‘employee’ in this guidance includes office-holders. See the Establishing employment status guidance note.

Separate legislation exists for tax and NIC. In most cases, both sets of legislation produce the same outcome, but not invariably. See the Off payroll working (IR35) ― particular NIC points and planning guidance note for more information.

Please see the Introduction to indirect and third party relationships guidance note in order to understand whether these rules, or other rules apply in relation to any particular contract. The rules vary when according to who the end-client in receipt of the service is. These different rules move the responsibility for operating the rules and collection of PAYE to a different party in the supply chain, but the underlying amounts of PAYE due remain broadly similar.

HMRC guidance is published on GOV.UK and ESM8000 onwards. HMRC also provides a webchat function for queries.

Scope of the rules

To be within IR35:

  1. there must be an engagement for personal services where the services are provided to another person (‘the client’)

  2. the client must not be either:

    1. a public sector body (in which case, the special rules for service companies and the public sector may apply instead ― see the Off payroll

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