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HMRC internal manual

Compliance Operational Guidance

HM Revenue & Customs
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Supporting Guidance: employer compliance: guidance by subject: particular occupations: IR35 service company - compliance check

The intermediaries legislation, commonly referred to as IR35, is anti-avoidance legislation designed to stop people from gaining a tax and National Insurance advantage by working for an engager through a third party. The third party or intermediary is often the worker’s own small limited company, usually referred to as a Personal Service Company (PSC).

Payments to companies are made without the deduction of tax and National Insurance Contributions (NIC), even where the person undertaking the work is an office-holder of the engager or would be an office-holder or employee if they worked for the engager directly. This provides the opportunity for the worker, who may also be a director of the PSC, to withdraw earnings without the deduction of income tax and NIC. IR35 stops this and says that all the company’s income must be treated as the worker’s earnings, with the PSC liable to deduct and account for tax and Class 1 NIC (employers and employees).

There is more detailed technical guidance on IR35 in the Employment Status Manual at ESM3000 onwards.

All cases where there is a risk of losing Pay As You Earn (PAYE) or NIC through the interposition of an intermediary or PSC must be referred to Specialist Employer Compliance (SEC).

HMRC has committed to a new compliance approach to IR35 and Personal Service Companies. This includes

  • external guidance on GOV.UK
  • strengthening specialist teams to work all new cases
  • making better use of information powers to overcome delay
  • improving our risk assessment process and using intelligence to focus on cases of the highest risk
  • adopting an approach that promotes earlier consideration of the customer’s opinion
  • a commitment to quickly terminate enquiries where risk is found to be low.

Treatment of travel and subsistence expenses

From 6 April 2016 new legislation restricts relief on home to work travel and subsistence expenses for workers who are engaged through an employment intermediary such as a PSC.  When the new employment intermediaries’ travel expense provisions apply, individuals who supply their services through PSCs will need to treat each engagement they undertake as a separate employment for the purposes of travel and subsistence

  • where they are required to operate the intermediaries’ legislation (IR35), or
  • where they would otherwise be operating the IR35 legislation if they weren’t receiving all their renumeration as employment income.

PSCs will not be required to consider the supervision, direction or control test within the new legislation unless they are managed service companies (or would be a managed service company if the worker was not taking all the income from the engagement as employment income).

This brings the treatment of their home to work travel and subsistence expenses in line with that of other temporary workers and contractors, whilst ensuring that those who operate more like the self-employed are able to claim relief for those expenses.

Identifying an IR35 case

The PSC often consists of

  • two directors or one director and the Company Secretary (who may be a husband and wife)
  • usually only one director’s services are provided to an engager (known as an end client) via the PSC.

Other models can exist.  For example, the director(s) may not supply their services via the PSC but there may be workers employed by the PSC who are supplied by the PSC to the engagers.

New ‘referral’ cases

You must refer all cases where there is the risk of losing PAYE or NIC through the interposition of an intermediary or PSC to SEC for further analysis.

  • Complete the SEC submission template (Word 44KB).
  • Send the template by email with the title ‘IR35 new cases’ to the centralised mailbox SEC, Postbox (WMBC).
  • Await instruction.

SEC will either

  • return the submission to the caseworker with the instruction not to pursue an IR35 review in this instance
  • refer it to one of the Specialist Employment Avoidance Teams or
  • exceptionally, refer back to the caseworker with appropriate advice and guidance on working the IR35 element of the case.

Note: You must use the same process to refer any evidence of customers acting as ‘clients’ engaging Personal Service Companies as this may represent valuable intelligence for additional enquiries.

Legacy cases

Caseworkers working IR35 legacy cases will continue working these cases but will be provided with an IR35 specialist to support them.

If you have not been contacted about specialist support, you must

  • complete the SEC submission template (Word 44KB)
  • send the template by email with the title ‘IR35 legacy case’ to the centralised mailbox SEC, Postbox (WMBC)
  • await instruction.

IR35 Customer Service Unit

This unit (also known as the IR35 Helpline) provides a valuable and confidential IR35 advice and contract review service to our customers. If a customer asks for advice on the operation of IR35, you must direct them to the IR35 Customer Service Unit at

Ground Floor North
Princess House
Cliftonville Road

Telephone: 0300 200 3885