What is IR35 legislation?
Answered 11 March 2026
Here is a comprehensive explanation of IR35 legislation based on the available sources:
What is IR35 Legislation?
What the law says
IR35 is formally known as the Intermediaries Legislation, found primarily in Chapter 8, Part 2 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). It applies where:
- An individual (the "worker") personally performs, or is under an obligation to personally perform, services for another person (the "client");
- The services are provided not under a direct contract between the client and the worker, but through a third party intermediary; and
- The circumstances are such that, if the services were provided directly, the worker would be regarded as an employee of the client (or an office-holder under the client) for income tax purposes.
The intermediary is typically a company (often called a Personal Service Company or PSC), but can also be a partnership or an individual.
When IR35 applies, the income of the intermediary is the starting point for calculating a deemed employment payment to the worker, which is:
- Chargeable to tax as employment income; and
- Subject to Class 1 National Insurance Contributions (NICs).
This also gives rise to an obligation to account for PAYE.
A tax deduction is available to the intermediary for the amount of the deemed employment payment and any employer's NICs paid on it (ITEPA 2003 s.49; ITTOIA 2005 s.163; CTA 2009 s.139).
HMRC Guidance / Practice
Purpose of IR35: IR35 is anti-avoidance legislation designed to stop individuals gaining a tax and National Insurance advantage by disguising their employment status.
Off-Payroll Working Reforms: The legislation has been extended over time. The original IR35 rules were reformed in 2017 for public sector hirers and further extended in 2021 to medium and large-sized hirers outside the public sector. These reforms require people who work in a similar way to an employee, but through their own intermediary, to pay tax and NICs like employees.
Order of priority: IR35 sits third in the hierarchy of legislation that a PSC must consider, after:
- Agency legislation
- Managed Service Company (MSC) legislation
- IR35 (Intermediaries) legislation
Office-holders: IR35 also applies to office-holders. For NICs purposes, this has always been the case. For tax purposes, office-holders have been explicitly included from 6 April 2013.
HMRC support: HMRC operates an IR35 Customer Service Unit which offers a contract review service and can provide an opinion on whether individual engagements fall within the intermediaries legislation.
Summary
In short, IR35 targets arrangements where a worker provides services to a client via an intermediary (usually their own limited company), in circumstances that would otherwise constitute employment. It ensures such workers pay broadly the same tax and NICs as direct employees, preventing tax avoidance through the use of intermediary structures.
Citation sources
Part 2 Employment income: charge to tax Chapter 8 Workers' services provided through intermediaries to small clients Application of this Chapter Engagements to which this Chapter applies 49 1 This Chapter applies where— a an individual (“the worker”) personally performs, or is under an obligation personally to perform, services for another person (“ the client ”), aa the client is not a public authority, b the services are provided not under a contract directly between the client and the worker
Income Tax (Earnings and Pensions) Act 2003, Part 2, Chapter 8, section 49 Social Security Contributions (Intermediaries) Regulations 2000, regulation 6 Social Security Contributions and Benefits Act 1992, section 2(1) When IR35 applies and a worker provides their services via an intermediary as an office-holder (ESM2502) the rules are different for tax and NICs purposes. It is important to establish when the worker’s services are provided. IR35 - NICs provisions for office-holders The IR35 NICs
Part 3 Trading income Chapter 9 Trade profits: other specific trades Intermediaries treated as making employment payments Deduction for deemed employment payment 139 1 This section applies for the purpose of calculating the profits of a trade carried on by an intermediary which is treated as making a deemed employment payment in connection with the trade. 2 A deduction is allowed for— a the amount of the deemed employment payment, and b the amount of any employer's national insurance contributio
The intermediaries legislation, commonly referred to as IR35, is anti-avoidance legislation designed to stop individuals gaining a tax and National Insurance advantage by disguising their employment status. In an IR35 case, an individual provides their services to a client via an intermediary. The intermediary is usually a company but can also be a partnership or individual. The intermediary earns all, or most, of its income from supplying the individual’s services in circumstances that would be
Part 2 Trading income Chapter 11 Trade profits: other specific trades Intermediaries treated as making employment payments Deduction for deemed employment payment 163 1 This section applies for the purpose of calculating the profits of a trade, profession or vocation carried on by an intermediary who is treated as making a deemed employment payment in connection with the trade, profession or vocation. 2 A deduction is allowed for— a the amount of the deemed employment payment, and b the amount o
The agency legislation takes precedence over the managed service company and Intermediaries legislation (sometimes known as IR35). If the agency legislation does not apply, or remuneration paid to the worker from any party in consequence of providing the services is not fully taken into account under the agency legislation, then the PSC must go on to consider if the provisions of the managed service company legislation apply. PSCs which do not meet the definition of a managed service company mus
General advice External customers seeking general advice about intermediaries legislation should initially refer to the guides on Gov.uk https://www.gov.uk/search?q=ir35. A new online service has been developed which can provide confirmation of HMRC’s opinion on whether the intermediaries legislation will apply to a particular contract. Specific advice For more specific advice about the intermediaries legislation customers can contact the IR35 Customer Service Unit/Helpline. The Unit provides su
rough: A Limited company, commonly known as a personal service company (PSC). See ESM9010 for the conditions that must be satisfied for the legislation to apply to a limited company. A partnership. See ESM9010 for the conditions that must be satisfied for the legislation to apply to a partnership. An individual through a non-corporate relationship. CEST refers to this as an ‘unincorporated body’. Off-payroll working (IR35) – This is a reference to the Intermediaries Legislation (IR35), the 2017