Implications for intermediary employers

By Tolley

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

  • Implications for intermediary employers
  • What is an intermediary?
  • The contracts
  • Office-holders
  • The client
  • Agency contracts
  • Tax obligations

Many people supply their services to clients, not directly as a self-employed person, but via a company. The tax and NICs 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 guidance note. For the rules generally, see the Anti-avoidance rules: “IR35” guidance note.

As it is the intermediary employer who is responsible for entering into contracts with the end clients for the provision of the worker’s services, it is the intermediary employer who is in the best position to negotiate contracts that will not fall within the IR35 rules (or indeed the special rules which apply where the end client is a public sector body). This guidance note includes information below on how particular terms in a contract are relevant in the IR35 context.

What is an intermediary?

The legislation talks about an ‘intermediary’ between the worker and the client. Normally this intermediary is a service company, but services provided via a partnership or by another individual are also caught.

ITEPA 2003, ss 52, 53

However, arrangements involving partnerships and individuals are rare in practice. As a result, this note assumes that the intermediary is a company, unless otherwise stated.

ITEPA 2003, ss 52, 53; ESM8055; ESM8060
The contracts

IR35 applies 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 service company.

The personal services legislation is thus based on the fiction that there is a contract directly between the client and the worker. This is known as the ‘notional’ or ‘hypothetical’ contract. If this

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