IR35

The so called “IR35” legislation was originally enacted in Schedule 12 Finance Act 2000 (which deals with tax) and the Social Security Contributions (Intermediaries) Regulations 2000 (which deals with National Insurance). IR35 is the name of the press release issued by the then Inland Revenue announcing the impending legislation in April 1999 and the name has been adopted as a generic name for the legislation ever since.

The principles are that where an individual is providing services to a client for the purposes of the business of the client and the contract arrangements are through a third party (the intermediary), the intermediary, which is usually the personal service company of the individual, is liable to pay the tax if the arrangements would amount to employment for tax purposes had the arrangements been direct between the individual and the client.

Accordingly HM Revenue & Customs is entitled to look at the contracts and all the working arrangements on the hypothetical basis that the arrangements between the individual and the client were direct, without including the intermediary or any third party.

Important Note: Substitution clauses and projects

Since April 2000 we have expressed the view that a contractor cannot just rely on a substitution clause to be able to operate outside IR35. We stand by that view today, supported by results in case after case. Where work would otherwise be caught by IR35 a substitution clause will not save the day, so do not be fooled!

In contrast to most non legal based adviser we have also since April 2000 expressed the view that project work is key to operating outside IR35. We also stand by that view today, again supported by results from case after case. For evidence see for example the IR35 reported case LimeIT v Justin . The clauses relied upon by the Commissioner to find in favour of the contractor, LimeIT, were drafted by Lawspeed.

Go to our IR35 advice area for information about how your status can be approved and defended by Lawspeed.