Where are we now with off-payroll (IR35)?

Produced by Tolley

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

  • Where are we now with off-payroll (IR35)?
  • 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

Where are we now with off-payroll (IR35)?


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

  1. the regime is viewed as unfair because it treats those within it as quasi-employees but without giving them employment rights. As a result, those affected by the regime have long campaigned for its abolition

  2. it is often far from clear whether an individual’s engagements are within, or outside, the rules (see the Establishing employment status guidance note). This causes uncertainty for individuals who frequently need specialist advice

  3. HMRC investigations are burdensome and can be so expensive that the business closes down

Each of these is discussed briefly below.


The original press release which introduced the first iteration of the legislation in 1999 said the rules were needed because personal service company (PSC) structures had damaging social consequences. Individuals working through PSCs:

“...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, the introduction of the off payroll working rules (IR35) did nothing to address this situation. It deducts employee’s and employer’s NIC from the workers’ deemed salary, because the individuals are deemed to be ‘disguised employees’ of their clients. However, there is no employment law recognition for these individuals.. 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 off payroll rules (IR35) continue, but despite a recommendation by the Office of Tax Simplification (OTS) for its suspension, successive Governments have all

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