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IR35
IR35 is the United Kingdom's anti-avoidance tax legislation, the intermediaries legislation contained in Chapter 8 of Income Tax (Earnings and Pensions) Act 2003. The legislation is designed to tax 'disguised' employment at a rate similar to employment. In this context, "disguised employees" means workers who receive payments from a client via an intermediary, e.g. their own limited company, and whose relationship with their client is such that had they been paid directly they would be employees of the client.
Under Chapter 8, the worker of the limited company is responsible for assessing their IR35 status under the rules and paying the appropriate National Insurance and Income Tax to HMRC.
New legislation was introduced on 6 April 2017 (Chapter 10 Income Tax (Earnings & Pensions) Act 2003) to make public sector organisations responsible for assessing whether an individual providing services for their organisation on a contract basis fell under IR35 rules, and for paying the National Insurance and Income tax to HMRC where relevant.
These rules (referred to as the off-payroll working rules) were extended to apply to private sector businesses that were classed as medium or large per the Companies Act 2006 as of 6 April 2021. This led to some lorry drivers deciding to retire, and thus contributed to the shortfall of lorry drivers in the UK.
In the September 2022 United Kingdom mini-budget it was announced that the 2017 and 2021 reforms to IR35 would be repealed, at a cost of £6.19 billion over 5 years. On 17 October 2022 however, the newly appointed Chancellor of the Exchequer, Jeremy Hunt, announced that the repeal would not go ahead and Chapter 10 would remain in place.
In 1999, as part of that year's Budget, the UK's Chancellor of the Exchequer, Gordon Brown, announced that measures would be introduced to counter tax avoidance by the use of so-called "personal service companies". Properly known as the "Intermediaries Legislation", it is more commonly referred to by the consecutively numbered Inland Revenue (now HMRC) budget press release number 35 in which it was announced (i.e. the 35th Inland Revenue news release of that budget), entitled Countering Avoidance in the Provision of Personal Services. The press release was issued on 9 March 1999, the same day as the Chancellor of the Exchequer's Budget Statement. The term was firstly applied by the campaign group the Professional Contractors Group who led the campaign against the new tax on the basis that it was a useful shorthand.
IR35 came into force throughout the UK in April 2000. Although it was part of that year's Finance Act and was not law at the start of the Financial Year, the Act backdated its commencement to 6 April 2000. The legislation has been consolidated in the Income Tax (Earnings and Pensions) Act 2003 and in the Statutory Instrument Social Security Contributions (Intermediaries) Regulations 2000, SI 2000/727. The Finance Act 2017 implements changes in the process for determining the amount of Income Tax and National Insurance to be deducted.
Before IR35 was introduced, workers who owned their own limited companies were allowed to receive payments from clients directly to the company and to use the company revenue as would any small company. Company profits could be distributed as dividends, which are not subject to National Insurance payments. Workers could also save tax by splitting ownership of the company with family members in order to place income in lower tax bands. (This latter practice was recommended by government publications advising on setting up family businesses, but attacked as tax fraud by other government departments, notably the Treasury. It came under a separate, ultimately unsuccessful attack in 2007; see S660A.) Professional advisors now do not recommend that family members should be allocated shares in the company unless they perform a significant role in the business (not just bookkeeping).
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IR35
IR35 is the United Kingdom's anti-avoidance tax legislation, the intermediaries legislation contained in Chapter 8 of Income Tax (Earnings and Pensions) Act 2003. The legislation is designed to tax 'disguised' employment at a rate similar to employment. In this context, "disguised employees" means workers who receive payments from a client via an intermediary, e.g. their own limited company, and whose relationship with their client is such that had they been paid directly they would be employees of the client.
Under Chapter 8, the worker of the limited company is responsible for assessing their IR35 status under the rules and paying the appropriate National Insurance and Income Tax to HMRC.
New legislation was introduced on 6 April 2017 (Chapter 10 Income Tax (Earnings & Pensions) Act 2003) to make public sector organisations responsible for assessing whether an individual providing services for their organisation on a contract basis fell under IR35 rules, and for paying the National Insurance and Income tax to HMRC where relevant.
These rules (referred to as the off-payroll working rules) were extended to apply to private sector businesses that were classed as medium or large per the Companies Act 2006 as of 6 April 2021. This led to some lorry drivers deciding to retire, and thus contributed to the shortfall of lorry drivers in the UK.
In the September 2022 United Kingdom mini-budget it was announced that the 2017 and 2021 reforms to IR35 would be repealed, at a cost of £6.19 billion over 5 years. On 17 October 2022 however, the newly appointed Chancellor of the Exchequer, Jeremy Hunt, announced that the repeal would not go ahead and Chapter 10 would remain in place.
In 1999, as part of that year's Budget, the UK's Chancellor of the Exchequer, Gordon Brown, announced that measures would be introduced to counter tax avoidance by the use of so-called "personal service companies". Properly known as the "Intermediaries Legislation", it is more commonly referred to by the consecutively numbered Inland Revenue (now HMRC) budget press release number 35 in which it was announced (i.e. the 35th Inland Revenue news release of that budget), entitled Countering Avoidance in the Provision of Personal Services. The press release was issued on 9 March 1999, the same day as the Chancellor of the Exchequer's Budget Statement. The term was firstly applied by the campaign group the Professional Contractors Group who led the campaign against the new tax on the basis that it was a useful shorthand.
IR35 came into force throughout the UK in April 2000. Although it was part of that year's Finance Act and was not law at the start of the Financial Year, the Act backdated its commencement to 6 April 2000. The legislation has been consolidated in the Income Tax (Earnings and Pensions) Act 2003 and in the Statutory Instrument Social Security Contributions (Intermediaries) Regulations 2000, SI 2000/727. The Finance Act 2017 implements changes in the process for determining the amount of Income Tax and National Insurance to be deducted.
Before IR35 was introduced, workers who owned their own limited companies were allowed to receive payments from clients directly to the company and to use the company revenue as would any small company. Company profits could be distributed as dividends, which are not subject to National Insurance payments. Workers could also save tax by splitting ownership of the company with family members in order to place income in lower tax bands. (This latter practice was recommended by government publications advising on setting up family businesses, but attacked as tax fraud by other government departments, notably the Treasury. It came under a separate, ultimately unsuccessful attack in 2007; see S660A.) Professional advisors now do not recommend that family members should be allocated shares in the company unless they perform a significant role in the business (not just bookkeeping).