Employment status

IR35 and other special rules


There are special rules that apply to contracts where individuals provide their services to a client through a third party, such as their own limited company or partnership. There is also a special tax scheme for contractors and self-employed subcontractors in the construction industry. See using contractors and subcontractors.


Legislation for off-payroll working through an intermediary, commonly known as IR35, brings the tax paid on certain contracts in line with the tax paid by employees.

As an employer, you do not make deductions for PAYE (Pay As You Earn) or National Insurance contributions (NICs) from payments made under such a contract to an 'intermediary'.

Off-payroll working through an intermediary (IR35).

Contractors and subcontractors in the construction industry

There is a special tax scheme for self-employed contractors and subcontractors working in the construction industry.

It does not apply to employees, who should be dealt with under the PAYE system.

See further guidance on the Construction Industry Scheme.

Managed service companies

A managed service company (MSC) is a form of intermediary company through which workers provide their services to end clients.

All payments received by individuals who provide their services through an MSC are subject to PAYE and NICs. The legislation ensures that all workers operating through an MSC pay tax and NICs at the same rate as other employees.

Where PAYE and NICs debts are irrecoverable from the MSC they can be transferred to third parties. These third parties include:

  • a director, or other office holder, or an associate of the MSC
  • an MSC Provider, or the director or office holder, or an associate of the MSC Provider
  • those that have directly or indirectly encouraged or been actively involved in the provision by the MSC of the services of the individual, or a director, or other office holder or associate of such a person

MSC guidance in the Employment Status Manual.