The Intermediaries legislation is a set of rules which came into force in April 2017. This legislation relates to anyone working as an independent contractor who might have been contracted directly by a client as a result of their services being intermediated. In simple terms, this means it applies to contractors who work through their own company and are liable for Income Tax on their earnings from that business. A lot of people think the legislation doesn’t apply to them because there are exceptions for ‘excepted intermediaries’ and some other exemptions too… But these aren’t broad enough or specific enough to protect you from falling foul of the trap if your circumstances aren’t covered by one of these exceptions.
What Is The Intermediaries Legislation?
Intermediaries legislation aims to extend tax liabilities to contractors who work through their own company, and are liable for Income Tax on their earnings from that business. It’s designed to catch out contractors who shouldn’t be able to claim the expenses they incur in the same way as an employee would. The legislation therefore affects anyone who is working as an independent contractor and may be contracted directly by a client as a result of their services being intermediated. In simple terms, this means it applies to contractors who work through their own company and are liable for Income Tax on their earnings from that business. Contractors working in the IT, engineering and construction industries are the most likely to be affected.
How Will It Affect You?
If you’re caught by IR35, you’ll lose several key tax advantages that are normally available to contractors. In particular, you won’t be able to write off your business expenses against your Income Tax because you’ll be treated as if you’re an employee rather than a contractor. Because you’re being treated as an employee for tax purposes, you might lose out on:
- A higher rate of Income Tax
- The government expects you to pay an extra 20% tax on the amount you earn through your limited company.
- National Insurance contributions (NICs) if you’re classed as a higher earner
- Losing access to company sick pay and other benefits that employees enjoy.
If you’re caught up in the Intermediaries Legislation trap, you could lose out financially. There are ways to reduce your risk of falling foul of the legislation, and it’s important that you do what you can to prepare yourself for this new regime. You might find that you fall foul of the legislation if you’re unsure of your status. To reduce the risk, you could consider contracting through an intermediary company (provided by an independent firm rather than your own business). Alternatively, you could negotiate a salary or a retainer fee with your client, which will put you on the same footing as an employee. Obviously, these are not ideal solutions. If you can, it makes sense to talk to a specialist tax advisor who can assess your specific situation and advise you on what you should do.