Intermediaries Legislation (IR35)

This page provides an introduction to IR35 and how it affects interim managers and users of interim services.

In April 2000, legislation was introduced to combat potential tax avoidance by individuals who provided their services through an intermediary, for example, a personal services company. Using this device, individuals had been able to avoid paying income tax and National Insurance contributions and would instead pay themselves in dividends.

This legislation, commonly known as IR35, has affected a lot of individuals who work on a contract basis through a single company – including interim managers.

Where IR35 applies, any sums received by the intermediary are treated as payments from the intermediary to the individual workers – and so attract PAYE and NICS. This is because the individual workers are treated as ‘employees’ for tax purposes.

In terms of the employment status of the worker, whilst HMRC may conclude an IR35 situation has arisen, it does not automatically follow that the individual worker is an employee for other statutory purposes. However, the fact that an IR35 situation has arisen may indicate that an employment tribunal would come to the same conclusion.

What does this mean for interim managers?

Interim managers should be aware that IR35 can apply to them if they are contracted largely or exclusively through a single provider and should seek independent tax advice.

What does this mean for users of interim services?

Essentially, the tax burden of such an arrangement will rest with the intermediary as opposed to their client, so users of interim services in general do not need to worry about IR35 unless they are hiring staff direct.

Where can I find out more?

More information about IR35 is provided by HM Revenue and Customs

BusinessLink provides guidance on setting up a limited company

The contents of this article are intended for general information purposes only and shall not be deemed to be or constitute legal advice. The summaries represent our understanding of the law as at November 14th 2007 and it is subject to change at any time. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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