What does IR35 or Intermediaries Legislation Mean for Self-Employed Contractors?

The world of work is changing, and the rise of the gig economy has meant that more people than ever are choosing to become self-employed contractors rather than employees. Self-employment comes with a range of tax advantages, but there are risks involved. Many self-employed workers can end up being liable for tax on their earnings as an employee — not as a contractor. The result is that increasing numbers of people operating under what appear to be contractual arrangements as consultants or freelancers find they actually have employment tax liabilities. This article explains what Intermediaries Legislation means for contractors working under limited company intermediaries, such as personal service companies.

What is Intermediaries Legislation?

Intermediaries Legislation is a set of rules that govern when people who are engaged through intermediaries are treated as employees. The rules are designed to close a loophole that allowed contractors to be taxed as self-employed even if they were in fact working for an employer or end client. The rules were first introduced in 1996 and apply to contractors who work through an intermediary that is not a client directly. The most common example of this is where contractors work through personal service companies such as limited companies, rather than for an individual or business that hires them directly.

When Does Intermediaries Legislation Apply?

The IR35 legislation applies whenever a person is considered an employee under normal employment rules, and is engaged by an intermediary. This could come into play in a variety of situations — for example, the contractor may be engaged by a personal services company, or they may be a limited company that provides services to another limited company. An employee is either someone who works for an end client directly, or who is engaged by an intermediary who is a client. The legislation is designed to prevent people who are employees from being misclassified and being taxed as self-employed.

Exceptions to the Rule

There are certain circumstances in which the intermediaries legislation does not apply, or can be avoided. The most common exception is where an employee has given their consent to be treated as a contractor. This is often the case with workers who have been involved in misclassification disputes and have been determined to be employees by the courts. Contractors may also be able to avoid the legislation if project-based work is being done for a client. Contractors need to have the right to end the contract and the right to subcontract work — without this being restricted by the client. They also need to be able to choose their own hours, not be hired for a specific term, and have no obligation to provide a minimum level of service.


The extent to which the intermediaries legislation applies to a particular situation will depend on the type of work being done, the contract terms, and who the parties are. There are no hard and fast rules, but if a contractor is working via an intermediary and feels that they might fall under the intermediarieslegislation, there are a few steps they can take to address the situation. These include working on ensuring that the contractor is correctly identified. This can include having a written description of the type of work being done, and the qualifications and experience of the contractor. The contractor should be sure that the contract terms reflect their status as a contractor, and that the intermediary is aware of the situation.