In this, the first of a series of articles, Andrew Humphrey formerly of law firm, Bishop & Sewell, clarifies what these changes are and why there is so much noise in the press about them. 

What is IR35? 

IR35 refers to what is essentially tax-avoidance legislation designed to tackle, what HMRC refers to as income from ‘disguised employment’.

Why was this introduced?

This legislation came about largely in response to a ploy used by a small number of typically large scale employers, who would terminate the employment of a group of employees in a specific business function only to re-engage with their old employees (often the following week) as contractors.  To what end? 

The benefit was that the employer would save (HMRC would suggest, avoid) National Insurance contributions.  The old employees/ new contractors benefitted through lower personal NI payments and various, potential tax advantages.  All of which contrived to reduce the amount the Exchequer received for essentially, the same work being completed by the same people.  The legislation was therefore designed to catch people who were, in reality, acting as employees and make sure the correct tax and National Insurance Contributions were paid.

HMRC also took exception where contractors were working through an agency connection on client sites but in a way which suggested that they were employees of either the agency or the end-client.

What action has HMRC taken to date?

There have been a number of changes to legislation in the last 12 months or so that have impacted in one way or another, on people who operate in the contractor market, including changes to dividend tax, NIC employment allowance impacting companies whose sole employee is the shareholder/director and the changes last year to tax treatment of travel and subsistence expenses.

Why is there so much in the press about IR35 now?

The problem is that the IR35 legislation as it existed pre-April 2017, was struggling to manage the fact that not everyone is a cynical employer or employee, trying to avoid tax and NI.  Most people move into contracting because they like working under assignments, having some control as to when they work, taking extended breaks between assignments, choosing where they work and acquiring new skills on new projects.

This flexible, mobile, skilled resource model suits lots of companies who need projects completing by experienced and skilled specialists, often at short notice, without increasing internal, permanent headcount and involving themselves in costly recruitment processes. The law has struggled to strike a balance here and this has resulted in a lot of press about developments as to how the legislation is to be interpreted and applied.

What are all these articles in the press about?

A lot of the press coverage is focused on a key change which from 6th April 2017 affected contractors operating through a limited company and who are providing services to Public Sector bodies and associations.

With effect from 6 April 2017:

  • The responsibility for determining IR35 status will transfer from the contractor to the Public-Sector body they are working for, even if the assignment is through a recruitment agency;
  • The Public-Sector body will therefore be responsible for determining a worker’s IR35 status prior to the worker starting on the assignment; and,
  • If deemed to be caught within the IR35 rules, and “deemed employment” status applies, it is the responsibility of the Public-Sector body or agency, to ensure that appropriate payroll deductions for PAYE and NI are applied to all payments made to the contractor’s company.

This was a significant change for Public Sector bodies, agencies and contractors alike and to assist them understand when a worker is caught within the IR35 rules, HMRC made available its new online employment status service assessment tool.

Who is impacted?

This legislative change only impacts contractors working in the Public Sector, the agency they are working through and of course the Public-Sector bodies to whom the contractors are delivering services, e.g. the NHS, government departments, local authorities.  For clarity, if you are contracted to a firm in the private sector, you remain unaffected by the recent changes.

Some contractors operating in the Public Sector, because of the role and conditions under which the role is delivered, may have been caught by the revised IR35 legislation.  As a result they be required to arrange to pay a ‘deemed salary’, which involves PAYE tax and NI contributions being deducted by the Public Body or the agency through whom they provide their services. 

What do you need to do about the changes?

Unless you are contracted directly with or through a limited company to, a Public-Sector body, there is nothing you need to do to at present. 

If you are working in the Public Sector and haven’t done so already, it is important to look over your contractual and operating arrangements with an accountant or a lawyer to make sure that you are working in a way which keeps the right side of the legislation and best suits your preferences and specific work circumstances.

About Bishop & Sewell

Bishop & Sewell LLP is a long-established, full service Central London law firm, acting as trusted advisers to families, businesses and entrepreneurs. To learn more, visit

Author: Andrew Humphrey is a senior solicitor specialising in Employment and Business Regulations matters and is Head of Employment at Bishop & Sewell,