Off-payroll (IR35) ― implications for intermediaries

Produced by Tolley

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

  • Off-payroll (IR35) ― implications for intermediaries
  • What is an intermediary?
  • The contracts
  • Office-holders
  • The client
  • Agency contracts
  • Tax obligations

Off-payroll (IR35) ― implications for intermediaries

Many people supply their services to clients, not directly as a self-employed person, but via a company. The tax and NIC advantages of this way of working are significant. See the Personal service companies ― overview guidance note.

There is anti-avoidance legislation, known as ‘IR35’, in place which catches individuals who would be employees or office holders of their clients if they did not use an intermediary, see the Establishing employment status and Anti-avoidance rules ― off payroll working (IR35) guidance notes.

This guidance note addresses how particular terms in a contract affect the likelihood of the off-payroll working (IR35) rules applying.

For further reading on the intermediary, see Simon’s Taxes E4.1005.

What is an intermediary?

The legislation uses the term ‘intermediary’ for the person between the worker and the client in the contractual chain. Often this intermediary is a personal service company (PSC), but services provided via any set up, including the intermediary being a partnership or another individual are also within the rules.

The contracts

The off-payroll rules (IR35) apply where a contract of employment or a contract to hold an office would have existed between the worker and the client had there been no intermediary in the contractual chain.

The legislation is thus based on imagining that there is a contract directly between the client and the worker. This is known as the ‘notional’ or ‘hypothetical’ contract. If this notional contract is one of employment or one to hold an office, the off-payroll rules (IR35) will apply. This is based on what is known as employment status and has developed through case law. For a summary of the employment status tests which determine whether a contract is one of employment or self-employment, see the Establishing employment status guidance note.

It is therefore necessary to first work out what would be in a notional contract, and apply the status tests to that notional contract to determine whether it would be a contract of employment.


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