Intermediary and IR35

Working through an intermediary and IR35


Instead of dealing direct with their client, a worker might deal with them through a third party intermediary, typically the worker’s own personal service company (“PSC”). Depending on the circumstances, the IR35 rules might apply and if they do their effect is to treat the person who works through the PSC as employed where, if they had instead worked as an individual (and not through a PSC), the law would have regarded them as employed, not self-employed. Our Guidance Note: Employment, Self-employment and IR35 (which you can see here) explains the term “intermediary” and “PSC” for this purpose.

Where a PSC is used, it is the PSC, not the worker, who contracts with the client and receives payment from the client, with the aim of saving tax/NIC. The worker is only paid by the PSC by way of share dividends and sometimes a salary.

This used to be a common practice, particularly in the IT and media sectors, but over the years the IR35 rules have been progressively tightened up, and so there is now often little to be gained from using a PSC. Measures tightening up IR35 were introduced in April 2017. Further measures introduced by the Finance Act 2020 (effective from 6 April 2020) add further constraints on the freedom to use a PSC and any benefit from doing so. There might also be additional changes to IR35 in future.

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