IR35

IR35 is the United Kingdom anti avoidance tax legislation designed to tax "disguised employment" at a rate similar to employment. In this context, "disguised employees" means workers who receive payments from a client via an intermediary, for example, their own limited company and whose relationship with their client is such that had they been paid directly they would be employees of the client.

Before IR35 was introduced workers who owned their own companies were allowed to receive payments from clients direct to the company and to use the company revenue as would any small company. Company profits could be distributed as dividends, which are not subject to National Insurance payments. Workers could also save tax by splitting ownership of the company with family members in order to place income in lower tax bands. (This latter practice was recommended by government publications advising on setting up family businesses, but attacked as tax fraud by other government departments, notably the Treasury. It came under separate, ultimately unsuccessful attack in 2007, see S660A.)

On 20 May 2010 the new Liberal Democrat/Conservative coalition Government's Programme for Government announced a commitment to "review IR 35, as part of a wholesale review of all small business taxation, and seek to replace it with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self-employed, or restrict labour market flexibility." On 10 March 2011 the Office of Tax Simplification recommended that the Treasury should suspend IR35 or compel HM Revenue & Customs to make changes to its implementation until wider structural reform to integrate Income Tax and NIC is introduced. After that, the Chancellor announced the Government would keep IR35 'as is' during Budget 2011, but with changes to HMRC administration and to create a new IR35 Forum.

In 1999, as part of that year’s Budget, the UK’s Chancellor of the Exchequer, Gordon Brown, announced that measures would be introduced to counter tax avoidance by the use of so-called personal service companies. Properly known as the "intermediaries legislation", it is more commonly referred to by the consecutively numbered Inland Revenue (now HMRC) budget press release number 35 in which it was announced (i.e. the 35th press release of that year), titled IR35: Countering Avoidance in the Provision of Personal Services. The press release was issued on 9 March 1999, the same day as the Chancellor of the Exchequer's budget statement.

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