UK: Preparing Your Private Sector Business For Changes To Off-Payroll Working

What is IR35 and what's changing?

IR35 is a piece of tax legislation introduced in 2000 to try and prevent individuals engaged as consultants via an intermediary (usually, but not always, a personal service company) from avoiding paying income tax and National Insurance contributions (NICs) by paying themselves in dividends as shareholders of the personal service company. When IR35 was first introduced the intermediary (and so usually the consultant themselves) had responsibility for determining whether IR35 applied to their relationship with the company engaging them and for accounting for income tax and NICs where applicable. This also meant that the intermediary (and so the consultant) bore liability for any penalties imposed by HMRC where their determination was wrong. This remains the case in the private sector. However, since 6 April 2017, where the company engaging the consultant is a public authority it has been for the authority rather than the intermediary to determine whether IR35 applies and, where it does, to make payment to those consultants (via the intermediary) subject to deductions of tax and NICs in the same way as it would do if they were directly employed by the authority. Where payment is through an agency or umbrella company, the authority has the burden of telling that organisation whether it considers the IR35 public sector rules should apply so that it can make the required deduction. HMRC estimates that an additional £550 million in tax has been raised since the public sector changes in 2017.

From 6 April 2020 the public sector changes (or something similar) will come into effect in the private sector. We will have to wait for the outcome of the recent consultation and publication of the draft legislation to see exactly how the changes to IR35 will be implemented in the private sector, but, whatever the outcome, the end result will require private sector companies to bear responsibility for determining whether IR35 applies to their relationships with the consultants they engage and take on the financial liability if they get this assessment wrong. 

The difficulty with determining whether IR35 applies

The IR35 rules will apply where:

  • an individual personally performs services for a client;
  • those services are provided under arrangements involving an intermediary; and
  • the circumstances are such that, if the arrangements had been made directly between the individual and the client, the individual would have been regarded as employed by the client for the purposes of either NICs or income tax (or both). 

The first two questions will usually be a clear matter of fact. Determining whether IR35 applies is usually therefore dependent on whether the individual would, were they not engaged and paid via an intermediary, have employment status for tax and NICs purposes. 

It is worth noting that, just because an individual is assessed as having employment status for the purposes of HMRC, they will not necessarily be an employee for the purposes of gaining employment rights. However, they often will be an employee for the purposes of both analyses and companies would be well advised to consider whether a consultant who is not genuinely self-employed for tax purposes may be, and should be treated as, an employee for the purposes of employment law. Indeed, from the point of view of the individuals to whom IR35 applies post April 2020, if they are going to be treated as employees for tax purposes they may prefer to have employment status. 

There have been a number of cases brought against HMRC by intermediaries operating in the private sector over the last 18 months which have highlighted how difficult it can be to determine employment status for tax and NICs purposes. In Christa Ackroyd Media Ltd v. Revenue and Customs Commissioners [2018] the first tier tax tribunal (FTTT) held that a television presenter engaged by the BBC via a personal service company would have been an employee had the personal service company not existed and that IR35 therefore applied to the fees that had been paid to her company (which should have deducted income tax and NICs before making the payment to her). The decision largely turned on a contractual clause which gave the BBC first call on her services and required her to obtain the BBC's permission before providing services to other broadcasters. 

However, the outcome of two more recent cases brought against HMRC in relation to television presenters has been quite different. In both Albatel Ltd v. HMRC [2019], a case concerning Lorraine Kelly, and Atholl House Productions Ltd v. HMRC [2019], a case concerning Kaye Adams, the FTTT found in favour of the taxpayers despite some factual similarities with the Christa Ackroyd case. In Ms Kelly's case the FTTT focused on a finding that Ms Kelly, and not ITV, controlled her "brand and personality" and so ITV did not exercise sufficient control to demonstrate that an employment relationship would have existed had it not contracted with her via an intermediary. In Atholl (which concerned Ms Adams' engagement with the BBC) the FTTT considered that, as Ms Adams had the ability to take on engagements with other broadcasters without the BBC's permission, it was clear that she was a freelancer rather than an employee and so IR35 did not apply. 

What these cases demonstrate is that the determination of whether a relationship is caught by IR35 can be very difficult and will always turn on its own facts. In the Albatel and Atholl cases HMRC clearly had sufficient conviction that IR35 applied such that it issued tax and NICs bills to Ms Kelly and Ms Adams. If the application of the rules is difficult for HMRC it is clearly going to be difficult for companies too. 

Preparing for changes to IR35

Companies should not take the IR35 changes lightly. Failure to get it right may lead to the imposition of penalties by HMRC and make an organisation unattractive to would-be consultants as well as bringing adverse publicity. Even more seriously, if an organisation is found to have been involved in structuring relationships or payments so as to unlawfully avoid tax, it may be subject to criminal penalties under the Criminal Finance Act 2017. 

On the direct implementation of IR35 to the public sector, many organisations decided to take a blanket approach to determining whether the rules applied and deduct tax at source from all sums paid to intermediaries through which individuals were engaged to ensure they didn't fall foul of the rules. However, as the recent case law examples have made clear, the determination will always be fact specific. For this reason, a blanket approach is an imperfect solution. The blanket approach initially taken by many public sector organisations proved problematic. Genuinely self-employed contractors were deterred from engaging with those organisations that took a blanket approach and took their services elsewhere. Private sector organisations will want to avoid this – particularly as, in times of economic uncertainty, they may well be in need of the valuable temporary resource contractors can provide. Organisations should therefore start to think about other approaches they might take to dealing with changes to IR35.

A good starting point is to take heed of HMRC's recent guidance. This recommends that medium and large private sector organisations that will be affected by the changes take the following steps:

  • Identify individuals currently providing their services to the organisation through intermediaries.
  • Undertake a case-by-case analysis to determine whether IR35 will apply to any contracts that continue past April 2020. HMRC has an online tool which can assist with this analysis. 
  • Speak to contractors about whether IR35 is likely to apply to them. 
  • Put processes in place to ensure that the correct rules are applied to future engagements. 

Other things organisations might be doing include the following:

  • Canvas the views of individual consultants to understand their view of whether IR35 applies to them. Where existing contracts are in place, they may well have taken steps to undertake this analysis and have some formal professional guidance on this.
  • Consider outsourcing the IR35 analysis to a third party. Some organisations that make this analysis their business are already out there – and agreements with them should require them to take on the financial liability if their analysis proves wrong.
  • Take steps now to ensure that future contracts avoid significant control and mutuality of obligation between the organisation and the intermediary and that this is reflected in reality. HMRC will look at the reality of the situation and not just the contract (and the lessons from case law are clear that the FTTT will take the same approach). 

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions