IR35: the intermediaries legislation from 1999 to today

IR35 is the name the industry gave to the rule announced in Inland Revenue press release number 35 on Budget day, 9 March 1999, and enacted in Schedule 12 of the Finance Act 2000 with effect from 6 April 2000. It applies where a worker provides services to a client through an intermediary, usually their own limited company, in circumstances where they would have been an employee of the client had the company not been there. Where it applies, the income from the engagement is taxed as employment income, with PAYE and National Insurance due on most of it and the company's ability to pay dividends or retain profit largely removed.

Why it was introduced

The Treasury's argument in 1999 was that people who had left permanent jobs on a Friday and returned as contractors on the Monday, doing the same work through a company, were paying materially less tax and National Insurance than their colleagues. The contracting industry's answer, then and since, is that the rule catches genuine businesses that carry their own risk, have no employment rights and lose work without notice. A contractors' lobby formed in May 1999 to fight the measure took it to judicial review in 2001 and lost, and the freelance body IPSE has campaigned against it ever since.

The tests

Whether IR35 applies is decided by asking what the relationship would have looked like as a direct contract between worker and client, and then applying the ordinary law of employment status to that hypothetical contract. The three factors the courts weigh most heavily are personal service and the right to send a substitute, the degree of control the client has over what is done and how, and mutuality of obligation, meaning whether the client must offer work and the worker must accept it. Around them sit the questions of financial risk, provision of equipment, integration into the client's organisation and whether the worker is in business on their own account. No single factor decides a case, and the tribunal decisions collected in this archive show how differently the same facts can be read.

The 2017 and 2021 reforms

For its first seventeen years IR35 was applied by the contractor's own company, which decided its own status and paid the tax if caught. HMRC found the rule almost impossible to enforce that way, and its own estimates put compliance at around one in ten. From 6 April 2017 the decision moved to the engaging body in the public sector, with the fee payer responsible for deducting tax where the engagement was inside. From 6 April 2021 the same off-payroll rules were extended to medium and large private sector clients. The consequences, blanket determinations, an exodus into umbrella employment and the disputes that followed, are covered on the off-payroll working hub.

Where things stand

IR35 remains in force alongside the off-payroll rules. Small private sector clients still leave the decision with the contractor's company, and the definition of small was widened in April 2026. HMRC has recovered around £400 million from government departments for their own mistakes since 2017. The Treasury ruled out a review of the legislation in June 2026, and the industry's 2026 Budget submissions asked instead for a statutory employment status test. The articles below trace the argument from the first press release to the present.