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HMRC internal manual

Employment Status Manual

Introduction: key terms for IR35

Income Tax (Earnings and Pensions) Act 2003, section 49(1)

Finance Act 2000, Schedule 12, paragraph 1(1)

Social Security Contributions (Intermediaries) Regulations 2000, regulation 2(1)

Social Security Contributions (Intermediaries) (Northern Ireland) Regulations 2000, regulation 2(1)

Key terms used in IR35 legislation and administration are:

Business entity tests - the voluntary tests businesses can take to demonstrate whether they are at high, medium or low risk in an IR35 context (ESM3015).

Client - the entity for whom the worker provides their services. This could be any third party in the contractual chain. See ESM3050 for more detail.

Company - means any body corporate or unincorporated association, but not a partnership.

Deemed employment payment/worker’s attributable earnings - the amount the intermediary is treated as paying to the worker under the legislation, which is chargeable to income tax as employment income and subject to Class 1 NICs.

  • ”Deemed employment payment” is the term used in the tax legislation;
  • “Worker’s attributable earnings” is the term used in the NICs legislation.

For simplicity, the rest of this section of the ESM refers only to “deemed employment payment” but these references should also be taken to mean “worker’s attributable earnings” unless stated otherwise.

Example scenarios - the scenarios published with the business entity tests to help illustrate when and why IR35 applies to an engagement by demonstrating some of the relevant factors. (ESM3015)

Intermediary - the third party through which the worker provides his or her services. An intermediary can be:

  • a company (sometimes referred to as a service company or personal service company)
  • a partnership (including Limited Liability Partnerships)
  • an unincorporated association
  • an individual.

Relevant engagements - all engagements that would meet the definition of employment with the client, in relation to which the intermediary is treated as making a payment to the worker in the tax year.

Worker - the individual who personally performs the services for the client.