Where are we now?

By Tolley

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

  • Where are we now?
  • Introduction
  • Unfairness
  • Uncertainty
  • HMRC investigations
  • Application to office-holders
  • Improvements in HMRC guidance and administration
  • Where the end client is a public sector body
  • The future and the private sector


Ever since its introduction in 2000, the IR35 legislation has been consistently problematic. In particular:

  • the regime is unfair because it treats those within IR35 as quasi-employees but without giving them employment rights. As a result, those affected by the regime have long campaigned for its abolition
  • it is often far from clear whether an individual’s engagements are within, or outside, IR35 (see the Establishing employment status guidance note). This causes uncertainty for individuals who frequently need specialist advice
  • HMRC investigations are burdensome and can be financially crippling

Each of these is discussed briefly below.


The original press release which introduced the legislation in 1999 said the rules were needed because service company structures had damaging social consequences. Individuals working through service companies:

“...may find their terms and conditions altered ― perhaps losing entitlement to sick pay or maternity leave. They may even lose their jobs without entitlement to notice or redundancy pay. They will usually have no right to any claim for unfair dismissal and may lose their entitlement to social security benefits through a failure to make adequate contributions.”

However, IR35 did nothing to address this situation. It deducts employee’s and employer’s National Insurance contributions (NICs) from the workers’ deemed salary, because the individuals are deemed to be ‘disguised employees’ of their clients. Employment law does not recognise this status. This means, for example, that individuals cannot claim unfair dismissal if their engagement is terminated, they have no rights to statutory redundancy and cannot normally obtain Jobseeker’s Allowance.

This has created a sense of unfairness about the whole regime, even before considering the practical issues faced by those potentially affected.

Calls for the abolition of the IR35 rules

More on Personal service companies: