IR35 is also known as ‘intermediate legislation’. It’s a set of rules that affect your tax and National Insurance contributions if you’re contracted to work for a client through an intermediary such as:
- your own limited company;
- a service or personal service company;
- a partnership.
You can check if the intermediaries legislation applies to an engagement online.
If IR35 applies then then the intermediary has to operate PAYE and National Insurance contributions on any salary or wages it pays to you during the tax year.
IR35 may also apply if you’re working through an intermediary and you:
- or your intermediary, or client are abroad;
- work in the construction company;
- are an office-holder;
- work with your partner or spouse;
- are working through an intermediary, for a charitable organisation.
There’s more detailed information about the IR35 conditions of liability in the Employment Status Manual.
Find out what you need to do if IR35 applies to you.
What are the penalties for not following IR35 rules?
The intermediary is always responsible for complying with IR35 legislation when it applies. If you’re a director of your limited company or a member of your partnership, you must make sure all relevant legislation is followed, and take responsibility for deciding if it applies for each of your engagements or not.
If IR35 legislation applied to previous contracts that you worked on but wasn’t complied with you, you should tell HM Revenue and Customs (HMRC) immediately. If you make a voluntary disclosure it may reduce any penalties you have to pay. Contact the IR35 helpline for advice on making a disclosure.
There can be significant consequences if you, your intermediary or client ignore IR35 legislation. Interest and penalties can be charged on any extra tax and National Insurance contributions that are owed. Penalties can be more severe if ti can be proved that IR35 rules or legislation have been deliberately ignored.
Working out the worker and client relationship:
When you’re deciding if IR35 applies to a contract, it’s important to establish what the underlying relationship (your employment status) is between you(the worker) and the client for each contract or engagement.
There’s usually a contract between your intermediary and the client, either directly or through another client such as:
- a staffing agency;
- a recruitment agency;
- an employment business.
You have to use the facts of each contract or engagement to decide if IR35 applies, not any label, description, or job title.
Work out your employment status for each contract by considering that relationship would be if there wasn’t an intermediary involved.
Do this for each individual contract, and make sure you consider them again if they change.
Remember that there can be more than one agency in the chain to supply your services to a client.
What if I use my own intermediary to provide a service?
If you’re engaged by a client through your own intermediary, it’s the client’s responsibility to consider your employment status and make sure they meet their own tax and National Insurance liabilities.
There’s usually a contract between your intermediary and the client, either directly or through another party such as a staffing agency, recruitment agency or through an employment business – as explained above. There can be more than one agency in the chain to supply your services to a client.
If all of the following apply then you need to follow IR35 legislation:
- you work for a client as a self-employed Contractor, Sole-trader, Freelancer, or Consultant;
- you could be considered an employee if the intermediary didn’t exist;
- you pay yourself through your own limited company or partnership (sometimes called an ‘intermediary’ or ‘personal service company’) or you have material interest in that company.
There are some circumstances where the client may be responsible for operating your PAYE, such as if:
- the contract or working arrangement shows that you’re engaged directly by the client as an office-holder or employee, then the client will be responsible for operating PAYE for you;
- a client contracts directly with you – the client will always be responsible for operating PAYE for you, even if payment for your services is made to your intermediary.
There may be penalties if the client doesn’t operate PAYE where needed.
Please get in contact if you require more assistance on this matter.