Understanding Intermediaries Legislation IR35

IR35 is also known as ‘Intermediaries Legislation’.  It’s a set of rules that affect tax and National Insurance contributions if a person is contracted to work for a client through an intermediary.

From April 2017, all public-sector employers are responsible for assessing any workers paid through an intermediary to see if IR35 applies. You may need to follow IR35 if someone works for you through an intermediary.

The intermediary can be:

  • The person’s own limited company
  • A service or personal service company
  • A partnership

If IR35 applies, then the client must operate PAYE and National Insurance contributions on any payments it pays to these workers during the tax year and report through RTI. IR35 doesn’t apply to you directly if an employee works for you through a Managed Service Company (MSC) or agency, for example an employment agency, but as a public entity you are responsible for obtaining information from the MSC that they are abiding by IR35 legislation for workers contracted through them to you.

Although contractors impacted by this measure may have to pay tax like an employee, their employment status will not change, so they will not receive the rights and benefits that go with employment such as pension contributions, holiday pay and unfair dismissal rights.

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 it can be proved that IR35 rules or legislation have been deliberately ignored.

The legislation puts the burden of responsibility on the entity that pays the contractor. The client is statutorily obliged to provide an answer in writing to the worker within 31 days of their IR35 status.  

Refer to HMRC should you have any queries or are unsure of the relationship you have with a contractor or worker not on payroll. You can check the status of a worker using the HMRC employment checker.

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