What is it?

Legislation designed to stop workers using an intermediary, such as a limited company, to pay less tax, when they should instead be employed directly by the client and treated as an employee.

The Intermediaries Legislation (IR35) was first mentioned in a 1999 Inland Revenue press release and became law in 2000.

The counter tax avoidance measures aimed to prevent ‘disguised employment’. In a nutshell this is where a person performs the same or a similar role to that of a company employee but is being paid via their Ltd Company.

To determine whether a worker is either inside IR35 (deemed an employee) or outside IR35 (deemed a genuine PSC contractor) a test was introduced by HMRC in 2017 called CEST (Check Employment Status for Tax). The test was used (alongside other independent tests) when IR35 was applied to the public sector back in 2017 to provide Status Determinations for individual PSC contractors.

Key terms

PSC –   Personal Service Company (AKA: Ltd Company)

IR35 – Tax legislation (AKA: ‘Off payroll’; & ‘Intermediaries legislation’)

Status Determination – A document shared down the supply chain declaring a contractor’s deemed employment status following an IR35 assessment/test

What does it mean?

Now that IR35 rules apply to the private sector the liability for any unpaid tax will fall on the end client who is paying the worker, rather than the individual contractor/PSC. Previously the PSC contractor was liable for any unpaid taxes (if they were deemed to be working as an employee while being paid as a PSC).

This puts pressure on private sector businesses to ensure they are engaging and paying contractors in the correct way. Businesses not adhering to the new private sector IR35 rules could face an unexpected tax bill, HMRC investigation and heavy penalties.

How will it affect me?

If you still have a need for this type of flexible resource in your business, you’ll need to determine the status of all of these workers, and pay them accordingly to ensure you stay compliant & risk free.

See also: ‘IR35 – What you need to do’ and ‘IR35 – How People Group can help’


The rules may not apply if during a 12 month period you fulfil two of the following:

1. Turnover – not more than £10.2 million
2. Balance sheet total – not more than 5.1 million
3. Number of employees – no more than 50