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The IR35 Rules govern situations where an individual provides services through an intermediary, such as a “personal service” company.

In these situations, the organisation receiving the services would pay the intermediary for the work and then the intermediary would pay the individual. The tax advantage of this arrangement was that individuals would not have to pay employee income tax and national insurance contributions, but would instead pay themselves in dividends through the intermediary legal entity.

When do the IR35 rules apply?

There are three conditions that need to be met in order for the rules to apply:
1) An individual performs services personally for a company;
2) The services are provided through an intermediary; and
3) If the individual had been contracted directly by the company, the individual would have been regarded as an employee of that company.

Who decides whether the rules apply?

The party responsible for deciding whether the IR35 rules apply is currently different depending on whether the individual is offering their services to a company in the private sector or the public sector.

When an individual provides services through an intermediary to a company in the private sector, it is the intermediary who is responsible for determining whether the IR35 rules apply. This was previously the position for both private and public sector companies; however as of April 2017 it became the responsibility of public sector end-users receiving the services to determine whether the IR35 rules applied. If they determined that the rules applied, they would then have to account for tax and national insurance through PAYE.

What are the incoming reforms?

From April 2020, medium and large private sector companies will be brought in line with public sector companies, meaning that these types of private sector companies will be responsible for determining whether the IR35 rules apply to individuals they engage through intermediary personal service companies.

What are the risks to you?

As the TICA membership base has a broad range of organisations within it, you as a reader of this article may be affected by these changes in different ways depending on whether you are a contractor or you work in a company that uses contractors to provide services for clients. However, this shift in responsibility and control means that whatever your role it is your clients, the end-users of services, who will now have to determine whether the IR35 rules apply to you/your contractors or not. Failing to apply the new IR35 rules where they should have been could result in a miscalculation of tax which could lead to financial penalties being imposed on the end-user of your services by HMRC.

In order to establish whether the IR35 rules apply to an individual or not, an end-user will have to make a decision about what the individual’s employment status would have been if they had been employed by your client directly and this is not a straightforward task.

Whether or not someone is considered to be an employee depends on multiple factors, as have been set out by the courts. HMRC highlight the following factors which should be considered when addressing an individual’s employment status, such as the level of control the company has over the individual; mutuality of obligations, which is whether the individual is obliged to carry out work and whether the company is obliged to provide it and whether the individual provides the work personally i.e. can the individual provide a substitute to provide the services instead? HMRC have produced an online tool which is designed to check if an individual providing services through an intermediary should be classed as employed or self-employed for tax purposes. However, this tool has been the subject of widespread criticism and this is unsurprising given that the determination of employment status is difficult and each case requires a complex assessment based on the individual facts of each case.


If you work for an intermediary you may be concerned about losing any contractors to larger clients where those contractors have done lots of work for those clients over a long period of time. This is because certain clients may choose to engage contractors directly on a PAYE basis so that they do not have to make employment status assessments of each individual contractor they engage, whilst retaining the necessary skilled labour. Examples of this happening in another industry are Lloyds Bank and Barclays, who have both indicated they plan to do this to avoid any financial implications of breaching the IR35 rules and the administrative burden of making individual assessments for each contractor they engage through an intermediary.


As an individual contractor, you may be concerned about losing business, as some companies may choose to no longer engage off-payroll contractors, but also that your status as a contractor may be at risk by certain clients offering direct employment as an alternative. A recent survey of 500 contractors showed that 37% would not consider going on payroll and 53% said this would deter individuals from becoming contractors in the future.1

How to respond?

If you are likely to be affected by the incoming changes, then you will need to carefully consider whether you currently engage any
individuals through intermediary personal service companies, or provide your services through such an intermediary, and what your position will be going forward. In order to avoid any arrangements being caught under the new IR35 rules, it may be necessary to alter both the terms and practical arrangements of the provision of services to ensure that you/your contractors are not classed as employees.

Should you require assistance with any issues which relate to the IR35 rules, such as making a determination as to an individual’s employment status or drafting new commercial terms of engagement, then please contact Paul on 0191 282 2870 or at 

1Jo Faragher, ‘Private sector warned of IR35 talent drain’ (30th September 2019)

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