IR35 Rules - Finance Act 2000

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Finance Act 2000:

The IR35 rules are set out in the Schedule 12 of the Finance Act 2000. We summarise below the basic details of the schedule:

The rules apply where:

(a) an individual ("the worker") personally performs, or is under an obligation personally to perform, services for the purposes of a business carried on by another person ("the client"),

(b) the services are provided not under a contract directly between the client and the worker but under arrangements involving a third party ("the intermediary"), and

(c) the circumstances are such that, if the services were provided under a contract directly between the client and the worker, the worker would be regarded for income tax purposes as an employee of the client.

The reference in paragraph (b) to a "third party" includes a partnership or unincorporated body of which the worker is a member. The circumstances referred to in paragraph (c) include the terms on which the services are provided, having regard to the terms of the contracts forming part of the arrangements under which the services are provided.

The impact of the rules if they apply:

In the case of an engagement to which the rules apply, for any payment made to the worker that is not chargeable to tax under PAYE (such as dividend income), the intermediary will be treated as making to the worker, and the worker will be treated as receiving, a payment chargeable to income tax under Schedule E and this is called the "the deemed Schedule E payment".

Calculating the deemed Schedule E payment:

Step 1:

Find the total amount of all payments and other benefits received by the intermediary in that year in respect of the relevant engagements, and reduce that amount by 5%.

Step 2:

Add the amount of any payments and other benefits received by the worker in that year in respect of the relevant engagements, otherwise than from the intermediary, that are not chargeable to income tax under Schedule E, and would be so chargeable if the worker were employed by the client.

Step 3:

Deduct the amount of any expenses met in that year by the intermediary that would have been deductible from the emoluments of the employment if the worker had been employed by the client and the expenses had been met by the worker out of those emoluments.

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IR35 Rules - page 1 IR35 Rules - page 2 Beat IR35 - page 1 Beat IR35 - page 2

Beat IR35 - page 3 Beat IR35 - page 4 Ltd Company - page 1 Ltd Company - page 2

Ltd Company - page 3 Ltd Company - page 4 Umbrella Companies - page 1

Umbrella Companies - page 2 Composite Companies - page 1 Composite Companies - page 2

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