Millward, May & Co - Wokingham Accountants
Wokingham Accountants

intermediaries legislation


IR35 Overview

IR35 is legislation designed to prevent tax avoidance by contractors who provide their services through a limited company but who are actually acting as an employee.

If HMRC proves that they are within the rules of IR35, then they would have to pay income tax and national insurance as if they had been employed (rather than the more tax efficient route of salary plus dividends).

If you are a genuine contractor who is in business on your own account then you shouldn’t need to worry about this, however it is worth understanding the legislation and ensuring that you have a contract in place and working practices to show that you are ‘self-employed’ and not an ‘employee’

Key things to consider before entering into a contract

This list only shows the key factors - it is not a tick box exercise. It is worth documenting your reasoning for each contract that you enter into - a yes to the following would help point towards self-employment.

  • Substitution: can you send a replacement to do the work that you are doing and have you ever sent a replacement?

  • Control: can you decide what you do, where, when and how you do the work without it being determined by the customer?

  • Mutuality of obligation: can you choose not to accept a piece of work from the customer? Can the customer choose not to provide you with work?

  • In business on own account:

    • Fixing errors - do you have to rectify any errors in your work from your own time rather than billing extra for the time spent fixing these mistakes?

    • Equipment - do you provide your own equipment to do the work?

    • Hiring helpers - can you hire people to help you with the work? Have you done so in the past?

    • Intention to have an independent relationship - do you have a number of customers at any one time?

  • Part and parcel of the organisation:

    • Are you separate to the organisation and would not be viewed as an employee from an outsider perspective?

    • Employee benefits - you don’t attend employee staff events or receive any other benefits relating to your work that employees normally receive?

Recent cases and decisions

Armitage - win for taxpayer versus HMRC

Armitage was an electrical designer who contracted through his own company and employment agencies to provide services to the end customer over four years.

Key factors in the decision:

  • Substitution: the customer would have accepted a reasonably qualified substitute but this was never tested in practice.

  • Control: Armitage chose to work somewhere other than the client headquarters. He only visited the headquarters once per project.

  • In business on own account: he was paid hourly and noted his own time. He did not use the time management system which applied to employees. He provided his own software and some of the equipment required. He worked on other projects for other clients at the same time as with this one.

  • Part and parcel of the organisation: He didn’t receive any benefits (sick pay, holiday pay etc) that were provided to employees and he didn’t attend social or training events. He was not part of the organisation.

Overall, he did not fall within IR35 and all tax penalties were cancelled.

BBC case - win for HMRC versus taxpayer

Christa Ackroyd was a BBC presenter who provided her services through her own company. She had a seven year contract with the BBC to provide her services up to 225 days per year.

Key factors in the decision:

  • Control: the BBC could specify what services she provided and had control over the content.

  • In business on own account: she could not provide services to another organisation in the UK without the consent of the BBC.

  • Mutuality of obligation: she was obliged to perform the services and the BBC was obliged to pay her on a monthly basis.

  • Substitution: she was not allowed to provide a substitute.

Overall, she did fall within IR35 and had to pay tax and national insurance on her income.


This is currently a very grey area. The rules are not that clear and it has mainly been determined by case law.

There is currently no clear tool to determine whether you are within or outside of IR35 - the government’s CEST tool is known to be inaccurate.

You need to ensure your contract is IR35 compliant and that your working practices reflect the contract terms - working practices are just as important as the contract terms.

You can get your contract reviewed by a specialist - please get in touch as we have a contact in this area. Alternatively, HMRC also offer a review service for free, however you may want to get a review done by someone independent.

The onus is currently on you as the contractor to prove that you are outside IR35 - however, from April 2020 it is expected that this responsibility will shift to the end customer (to bring the rules in line with the public sector). The impact on the contracting world is as yet unknown but it could see companies become more cautious when taking on contractors as they will bear the risk.

Useful HMRC links