IR35 can apply when you work for a client through an intermediary such as a limited company or partnership.


Intermediaries legislation (known as IR35) is the tax and National Insurance contributions legislation that may apply if you’re working for a client through an intermediary.

If IR35 applies, all payments to the intermediary are treated as your employment income and the intermediary must pay any tax and National Insurance contributions due. It ensures that you pay roughly the same amount of tax and National Insurance contributions as if you’d been directly employed by the client.

The intermediary is always responsible for ensuring compliance with the IR35 legislation when it applies. As a director of your limited company or a member of your partnership, you must ensure compliance with all relevant legislation, and take responsibility for determining whether IR35 applies for each of your engagements or not.

There can be significant consequences of ignoring IR35 legislation. Interest and penalties may be charged on any additional tax and National Insurance contributions due as a result of an HM Revenue and Customs (HMRC) enquiry into your situation.

Entity Terms used
Worker (you) director, self-employed worker, freelancer, consultant, contractor
Intermediary individual, partnership, limited company (sometimes called a service company or personal service company)
Client end client, client business, end-user, engager

IR35 may also apply if you:

  • or your intermediary, or client are abroad
  • work in the construction industry
  • are an office-holder
  • work with your partner or spouse
  • are engaged by a charitable organisation

If IR35 doesn’t apply to a particular engagement you should keep clear and relevant records of the terms and conditions for at least 3 years, including contracts. If your contract changes or you start a new engagement, you must always reassess whether IR35 does apply.

If IR35 applies, find out what you need to do.

When IR35 will apply

Client responsibilities

If you’re engaged by a client though your own intermediary, the client must consider your employment status to ensure they fulfil any tax and National Insurance contributions liabilities of their own. If the contract or particular working arrangement shows that you’re effectively engaged directly by the client as an office-holder or employee, then the client will be responsible for operating PAYE for you. There may be penalties if the client doesn’t operate PAYE when appropriate. If a client contracts directly with you, the client will always be responsible for operating PAYE for you, even if payment for your services is made to your intermediary.

Services provided through an agency

If you provide services to an ‘employer’ through a third party (often an employment agency) so that, technically, you are not a direct employee of either, the agency legislation may apply. If it does, you must comply with this legislation rather than IR35. If the agency is based outside the UK the client may be liable to operate PAYE and make the appropriate deduction, returns and payments of tax and National Insurance contributions instead.

Services provided through a managed service company (MSC)

If you provide your services to end clients through an intermediary company which is controlled and run by a third party service provider, then the MSC legislation may apply. If it does, you must comply with this legislation rather than IR35

Worker client relationship

IR35 looks at the underlying relationship between you (the worker) and the client for each contract or engagement. The facts of each engagement determine whether IR35 applies and not any label, description or job title. You need to assess what that relationship would be (your employment status) if there were no intermediary involved. You and your intermediary must assess the underlying relationship between you and your client for each of your contracts individually. You must assess them again if they change.

There’s usually a contract between your intermediary and the client, either directly or through another party, such as a staffing agency, a recruitment agency or an employment business. There can be more than one agency in the chain to supply your services to a client.

IR35 will apply if all the following statements are true:

  • you personally perform services for another person or business (the client) or are under an obligation to do so
  • the services are provided to the client through an intermediary such as a limited company or partnership which does not meet the definition of a MSC
  • your services are supplied as either an office-holder of the client or if you had provided the services directly to the client under a contract between you and the client, your employment status would be regarded as being that of an employee or office-holder of the client
  • the specific IR35 conditions of liability for your intermediary are met

You can find further information about IR35 in the Employment Status Manual. It can also help you assess your hypothetical employment status were there no personal service company or partnership involved in the arrangements.

Intermediary is a limited company: conditions of liability

You’ll need to consider IR35 if one of the following applies:

  • you (or an associate, or a member of your family - which can include an unmarried partner) control, or have the ability to control, more than 5% of the ordinary share capital of the company directly or indirectly
  • you (or an associate, or a member of your family - which can include an unmarried partner) have, or are entitled to acquire, rights to receive more than 5% of any dividends from the company
  • if your company is a close company - and you (or an associate, or a member of your family - which can include an unmarried partner) possess, or are entitled to acquire, rights that entitle you to more than 5% of the assets that would be available for distribution if the company is wound up
  • you or an associate receive, or could receive, payments or benefits directly or indirectly from the intermediary which aren’t employment income, but could reasonably be taken to represent payment for the services you provide to clients

Intermediary is a partnership: conditions of liability

You’ll need to consider IR35 if you’re a partner and one of the following applies:

  • you (or your family - which can include an unmarried partner) are entitled to 60% or more of the profits of the partnership
  • all or most of the partnership’s income comes from providing services to a single client, or to a single client and its associates
  • the profit sharing arrangements in the partnership are designed to ensure that you receive an amount based on the payments received for your services to clients for engagements within IR35 legislation.

You’re an office-holder

IR35 legislation will apply to you if you supply your services to a client through an intermediary:

  • as an office-holder of the client
  • if you’d be regarded as an office-holder of the client if you provided your services under a contract directly between you and the client

The IR35 National Insurance contributions legislation has always applied to office-holders. However, before 6 April 2013, the IR35 tax legislation generally only applied to office-holders if they would also have been regarded as an employee if engaged directly by the client.

The IR35 rules don’t apply:

  • simply because you’re a director of your own personal service company
  • just because your job title refers to you as an ‘officer’ but you don’t actually hold an office
  • when a company engages another firm to provide services (such as auditor) and there’s no requirement for your personal services

You work in the construction industry

If you’re a subcontractor working in the construction industry through a limited company or partnership both the IR35 legislation and the Construction Industry Scheme (CIS) can apply to you. For example, this can happen where you would be regarded as an employee of the client if there was no limited company or partnership acting as an intermediary.

To prevent tax and National Insurance contributions being paid on the same amount of earnings twice within the CIS and IR35 schemes special rules apply.

IR35 if you, the intermediary or client is abroad

Limited company or partnership is incorporated or resident abroad

Under IR35, when a worker living in the UK performs work for a client in the UK, the intermediary (limited company or partnership) is treated as having a place of business in the UK even if it’s incorporated or resident outside the UK.

If an offshore intermediary fails to deduct and account for tax and National Insurance contributions due under the IR35 legislation, liability to pay tax and National Insurance contributions can be transferred to the:

  • worker
  • onshore agency
  • end client

Action to recover employer’s National Insurance contributions not paid by an offshore intermediary could also include action against any of its assets located in the UK.

HMRC has powers to obtain details of payments to offshore intermediaries from the records of clients and agencies.

Client is non-UK resident

If IR35 applies, the tax and National Insurance position will depend on:

  • the tax residence status of the worker and client
  • the location in which the duties of the contract are carried out

Tax relief for work done overseas

If work is carried out overseas then the company may be liable to foreign tax on its profits. A foreign tax authority may also withhold tax in respect of payments made to the company. Relief for foreign tax credits is normally given against the company’s UK tax liability.

If the company doesn’t have sufficient UK tax liability to give full effect to any such credit, but the worker does, then the balance may be allowed against the tax liability on the IR35 deemed employment payment.

Tax relief can only be given where it’s possible to directly link the work in the overseas country and the deemed employment payment. Relief can’t be given against the National Insurance contributions liability. They should make a claim to HMRC for tax relief.

Foreign Nationals

If you’re a foreign national who provides your services through an intermediary you may be affected by the IR35 legislation.

Services to help you find out if IR35 applies

You can use the following free and confidential HMRC services to help determine if IR35 applies to you:

  • business entity tests and scenarios (until 5 April 2015)
  • IR35 Helpline
  • Contract Review Service

Business entity tests and scenarios

The business entity tests and scenarios are available until 5 April 2015. After that they’ll be withdrawn.

The they won’t tell you whether IR35 actually applies to each engagement but they’ll help you work out the overall risk that IR35 applies to you and the likelihood of an HMRC enquiry. The tests will help you work out if you’re low, medium or high risk.

You must consider every contract on its own merits and just because you’re in the:

  • medium or low risk band overall, doesn’t automatically mean that you’re outside IR35
  • high or medium risk band overall, doesn’t automatically mean that you’re within IR35

You must retake the tests when circumstances change.

IR35 Helpline

If you need help understanding and applying IR35, contact the IR35 Helpline. It’s confidential and any information you give won’t be shared with HMRC compliance teams. You don’t need to reveal your identity to use the helpline.

The Contract Review Service

If you want to be certain about your position you can use HMRC’s Contract Review Service. HMRC will review a written contract for you, and if they decide that IR35 doesn’t apply to your contact, they’ll give you a confirmation letter with a unique reference number that will be valid for 3 years. If, later on, HMRC open an IR35 review, you can give them this number and they’ll suspend the review while they consider all the information. HMRC will close the IR35 review if:

  • the contract reviewed is typical of your engagement terms and conditions
  • the information provided is accurate
  • evidence shows that circumstances haven’t changed

What the Contract Review Service can do

The Contract Review Service can only give advice on existing contracts. HMRC won’t usually give opinions to companies or partnerships on contracts for a particular tax year unless they have all the information they need before the 5 April of that tax year.

HMRC will review the:

  • facts including looking at whether the relationship between a worker and a client would have been one of employment if there had been no intermediary company or partnership
  • contract or contracts which establish the relationship.

They may also want to talk to you and to others, including the client.

HMRC gives contract review requests priority and aim to deal with them as quickly as possible. If you don’t or can’t provide all the information, it may not be possible for HMRC to form an opinion.

Information the Contract Review Service will need

HMRC need your full co-operation to establish the facts relating to the engagement and will need to see copies of any contracts involved in the relationship. You should send copies of these contracts to the IR35 Customer Service Unit together with any other relevant information, such as:

  • any other documentation relating to the working terms and conditions
  • written statements from the worker and the client about their views of the working terms and conditions with particular emphasis on what happens in practice
  • details of how the engagement was obtained and the recruitment procedure together with a copy of any adverts for the work in question
  • a description of the nature of the services to be performed together with any job or work specifications for the contract
  • copies of any tenders made by the intermediary
  • details of any additional contractual terms not included within the written contracts, whether oral, written or implied
  • details of how and who allocates the work and the role the worker plays in the client’s organisation i.e. does he or she work alone or as part of a team
  • other relevant information from the worker or intermediary - for example this might include:

    • the number of engagements held during the year
    • the number of different engagers
    • expenditure on equipment necessary for the performance of the contract

You should also provide the:

  • worker’s National Insurance number
  • company’s HMRC reference number
  • company’s postcode

If you can’t get a copy of a written contract, for example a contract between an agency and the client, it’s essential that there is some evidence from the client about the terms and conditions of work. HMRC can help you if you have a problem obtaining contracts.

In some cases HMRC may not have enough information to give an opinion and in others their opinion may have to be heavily qualified. But, where an opinion is given, you’ll be able to rely on it so long as you’ve supplied all the relevant information and there’s evidence that the terms of the engagement don’t change part way through.

For advice on using the Contract Review Service contact the IR35 Helpline.

If you disagree with HMRC’s opinion

If you disagree with an opinion of the IR35 Contract Review Service and it can’t be resolved quickly, the papers will be passed to the local IR35 Inspector. This will only be done with your full permission. They’ll reconsider the opinion given and, where necessary, seek additional evidence from the worker and/or the client.

If there’s sufficient evidence to support an opinion and you disagree with that opinion, you can ask for an appealable decision against which you have a right of appeal.

IR35 applied to past contracts but not operated

If IR35 applied to previous contracts that you worked on but your company didn’t operate IR35 you should disclose this immediately.

You must pay the tax and National Insurance contributions due, as well as any interest due on these amounts. HMRC may also apply a penalty, which is more severe if it can be proved that you’ve deliberately ignored the IR35 rules or legislation.

If you make a voluntary disclosure it may reduce any penalties you have to pay. Contact the IR35 Helpline for advice on making a disclosure.