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HMRC internal manual

Employment Status Manual

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HM Revenue & Customs
Updated
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Introduction: summary of the IR35 legislation

Income Tax (Earnings and Pensions) Act 2003, Part 2, Chapter 8

Finance Act 2000, Schedule 12

Welfare Reform & Pensions Act 1999 Sections 75 & 76

Social Security Contributions (Intermediaries) Regulations 2000 (SI 2000 No.727)

Social Security Contributions (Intermediaries) (Northern Ireland) Regulations 2000 (SI 2000 No.728)

The use of intermediaries, such as service companies and partnerships, has the potential to:

  • reduce or avoid an individual worker’s personal tax/NICs liability and
  • reduce or avoid liability to employer’s NICs

Legislation was introduced with effect from 6 April 2000 (ESM3012) to counter this:

  • For tax - originally, in Finance Act 2000, Schedule 12. From 6 April 2003 IR35 tax legislation is in the Income Tax (Earnings and Pensions) Act 2003, Part 2, Chapter 8.
  • For NICs - in the Welfare Reform and Pensions Act 1999, section 75 with the detail in the Social Security Contributions (Intermediaries) Regulations 2000. NICs legislation cannot be included in Finance Acts so, in order to be able to introduce these anti-avoidance measures for both tax and NICs purposes at the same time, the NICs aspects were included in the Welfare Reform and Pensions Act 1999. In Northern Ireland, the equivalent NICs provisions are in section 76 of the Welfare Reform and Pensions Act 1999 and the Social Security Contributions (Intermediaries) (Northern Ireland) Regulations 2000. For simplicity, reference is made only to the Great Britain legislation in the rest of this guidance.

The legislation applies to income received in respect of services performed on or after 6 April 2000. It is generally known as the Intermediaries legislation or “IR35” (after the number of the 1999 Inland Revenue press release announcing its introduction).

Further information

Originally, IR35 legislation only applied where an individual performed or was under an obligation to perform services for the purposes of a business carried on by another person. However in 2003, amending legislation removed the requirement for services to be provided for the purposes of a business and now only requires services to be provided for another person. This extended the scope of IR35 legislation, for example to domestic workers providing their services via an intermediary (ESM3040). This change applied to income received by the intermediary:

For tax - for services provided after 9 April 2003

For NICs - for services provided after 31 August 2003.

Managed Service Company (MSC) legislation was introduced from 6 April 2007 (Income Tax (Earnings and Pensions) Act 2003, Chapter 9). The MSC Legislation applies to individuals providing their services through intermediaries which meet the definition of a Managed Service Company. Intermediaries must first consider whether the MSC Legislation applies before considering IR35. Intermediaries that do not meet the definition of an MSC must continue to consider IR35.

The Government initiated a review of IR35 during 2010. This led to changes in the way HMRC administers the IR35 legislation (ESM3012).