The rules will apply to your intermediary does not meet the definition of a Managed Service Company, and you can answer 'yes' to both the following questions:
These questions are explained in more detail below.
The IR35 rules only apply if you would have been an employee of your client, had it not been for the existence of your Personal Service Company or partnership.
If you can answer 'yes' to most of the following questions, you would probably have been an employee of your client for the contract in question and therefore within the new rules:
If you can answer 'yes' to most of the following questions, you would probably not have been an employee of your client and therefore outside the new rules:
You will have to think about each contract individually. Some people will find that they have some contracts, which would have been employment and so come within the rules, and others which do not.
The number of clients you have may be relevant to the decision whether your work for each as an employee, or as a self-employed person. If you have many different clients this may indicate self-employment, and be a factor that should be considered in addition to the actual details of each contract. If you have a number of different clients, but are unsure whether you are within or outside the rules, you may wish to talk to your HM Revenue & Customs (HMRC) Enquiry Centre.
More information about employment status can be found at Employment-Status
If your services are supplied through a company, and the company does not meet the definition of a Managed Service Company, the IR35 rules apply if:
If your services are supplied through a partnership of which you are a partner, and the partnership does not meet the definition of a Managed Service Company, The IR35 rules apply if:
* family includes an unmarried partner
Your Personal Service Company/ partnership should operate Pay As You Earn (PAYE) and pay NICs on any payments of salary during the year in the usual way.
You may also have to pay an additional amount of tax and NICs, based on the payments received by your PSC or partnership for your services, at the end of the tax year or earlier, if you break your connection with the company or partnership during the year (see 'Common questions'). Your PSC or partnership will also pay employer's NICs on the same amount.
At the end of the tax year you will need to check that you have paid the correct amount of tax and NICs. If not, you may have to pay additional tax and NICs.
To calculate if any tax or NICs are due at the end of the year, see the notes 'How to calculate the IR35 deemed payment'.
No. The deemed payment is simply a means to calculate the tax and NICs due, whether or not any payment is actually made to the worker. It can be paid as salary, but the rules do not require this to happen. It may be given to the worker (or others) in the form of dividends, or may be retained in the Personal Service Company.
Where the PSC is treated as making a deemed payment and pays a dividend, it may make a claim for relief. If HMRC is satisfied that relief should be given in order to avoid a double charge to tax, relief is given setting the amount of the deemed payment against the dividend so as to reduce the dividend.
The deemed payment and employer's NICs due on it can be deducted when calculating your PSC's corporation tax.
PSCs should be aware an extra payment of tax and NICs might be due at the end of the tax year and budget accordingly.
Any tax and NICs due at the end of the tax year as a result of the calculation of the IR35 deemed payment should be paid according to the normal PAYE and NIC payment rules. The amount of the deemed payment and the tax and NICs due on it should, if possible, be included in the PAYE return by 19 April and in the Employer's Annual Return (Form P35), which has to be sent to HMRC by 19 May.
Most of the information needed to calculate the final tax and NICs liability should be available before 5 April and it should be possible to make an estimate of the tax and NICs due at that point. It will be important to keep records of relevant income and expenditure so that you can do this.
However, if it is not possible to calculate the correct amount by 19 April, HMRC will accept a payment of a lower amount on account of the tax and NICs due, as long as it is made clear on the Employer's Annual Return (P35) that the amount is provisional.
There will be an interest charge on any of the tax or NICs due on the deemed payment, if it is paid after 19 April. But, if you make it clear on the P35 that the amount is provisional, no penalties will be charged if you pay the correct amount by the following 31 January.
This concession on penalties will be reviewed annually to establish whether it should continue to apply for future years.
If you do not send the final amount by 31 January following the end of the tax year, HMRC will take steps to collect any unpaid tax or NICs, and any interest due. In addition penalties may be sought in cases of negligent or fraudulent conduct.
If you stop working through your PSC or partnership before the end of the year, the deemed payment should be calculated in the normal way, and will be treated as having been made immediately before you stop. Please contact your HMRC Enquiry Centre or IR35 helpline (Tel No: 0300 200 3885) for further advice.
In addition to the flat rate deduction of 5 per cent, the following expenses can be deducted in the calculation:
This will depend on your pattern of working. If you work through your Personal Service Company or partnership for a series of clients in different places, you may be able to deduct the costs of travelling to your clients' places of business. Provided you do not expect to spend more than 40 per cent of your working time at any one site you are entitled to a deduction for all journeys from home to the clients' premises.
If you do spend more than 40 per cent of your time at a single site, but the engagement is both expected to, and actually does, last for no more than two years, a deduction for travel costs will also be available. Further details are in 'Booklet 490: Employee Travel - a tax and National Insurance contributions guide'.
For years 2002-03 onwards where:
If the Personal Service Company or partnership provides you with a car for your private use, you will have to pay tax on this benefit according to the rules that apply to other employees. The amount of the car benefit charge can be deducted (at Step 5) in calculating the deemed payment. See sections 11 and 12 of 'Booklet 480: Expenses and benefits - a tax guide' for further details.
Class 1A NICs paid on the company car benefit will be deductible in the calculation of the IR35 deemed payment, alongside other employer's NICs.
Your PSC or partnership will be able to set any costs of providing the car, including capital allowances, against its taxable profits.
The IR35 deemed payment is treated as income from employment with the Personal Service Company or partnership. It should be recorded on your Self Assessment return on the supplementary employment pages. If you have any other income from employment with the same PSC or partnership you should record the total amount, including the deemed payment.
In calculating the IR35 deemed payment, you can deduct expenses paid by
the Personal Service Company or partnership which you would have been allowed
to claim against tax if you had been an employee of the client, and spent
the money yourself. These expenses must relate specifically to your engagement
with that client. You will have to keep suitable records to be able to identify
the correct amounts.
For example, this could be by reference to car mileage to work out what part of the motoring expenses related to engagements affected by the new rules.
This will depend on the particular facts and circumstances. If a Personal Service Company or partnership receives a payment in respect of services provided by more than one worker, the payment should be apportioned between them, by the PSC or partnership, on a reasonable basis. HMRC will re-apportion any payment if it appears the company's or partnership's basis of apportionment is unreasonable. The company can appeal against the decision of HMRC.
If you work overseas your tax and NICs liabilities are the same as if you were employed directly by the overseas client. Further information on liability and the rules about residency can be found in the HMRC booklet IR20 Residents and non-residents - Liability to tax in the United Kingdom (PDF 423K).
No. If you would have been liable to UK tax and NICs had you been employed directly by the client, you must pay UK tax and NICs under these rules, whether or not your service company is located in the UK.
If an offshore company fails to deduct and account for PAYE tax and NICs under the IR35 legislation, liability to pay tax and NICs can be transferred to you. Action to recover employer's NICs not paid by an offshore company could also include action against any assets of that company located in the UK.
HMRC has powers to obtain details of payments to offshore companies from the records of clients and agencies.
Advice can be given on existing contracts only.
The company or partnership is required to submit a form P35 by 19 May following the end of the tax year. Consequently, HMRC will not usually give opinions to companies/partnerships on contracts relating to a particular tax year unless all information sufficient to form an opinion is supplied prior to that date.
HMRC will review the facts. This will involve looking at whether the relationship
between a worker and a client would have been one of employment, if there
had been no company or partnership. In order to do this, HMRC will review
the contract or contracts, which establish the relationship. They may also
want talk to you and to others, including the client. It is up to you to provide
all the information. If you do not or cannot do so, it may not be possible
for HMRC to form an opinion.
If you do not agree with an opinion given by HMRC, and further discussion has failed to achieve agreement, you can request a formal decision against which you can appeal.
Further details on the procedure to be followed can be found under FAQs - General, Q.14.
If you would like our opinion on a particular engagement you should send your contract(s) to:
IR35 Customer Service Unit
Ground Floor North
e-mail: IR35 Unit
Tel No: 0300 200 3885 (Opening hours 8.30am to 4.30pm, Monday to Friday.
Closed weekends and bank holidays)
Fax No: 03000 527 450