The Finance Bill published today includes provisions to help prevent the avoidance of tax by workers who provide their services to clients through intermediaries, such as personal service companies. Separate Social Security Regulations which introduce the same rules for National Insurance purposes are already in place.

Together, the tax and National Insurance provisions fulfil the Chancellor’s commitment in Budget day 1999 Press Release, IR35, to achieve a fair tax system by tackling this sort of avoidance.

The new rules will apply from 6 April 2000.


1. On Budget day last year, the Chancellor announced his intention to act to counter avoidance in the area of personal service provision.

2. Until now, intermediaries such as service companies could be set up to provide the services of a single worker to a client in circumstances where, if the service company did not exist, the worker would be an employee of the client. The use of service companies in this way allowed the client to make payments to the company rather than the individual, without deducting PAYE or National Insurance Contributions (NICs).

3. The worker could then take money out of the service company in the form of dividends instead of salary. Dividends are not liable to NICs so the worker could pay less in NICs than either a conventional employee or a self-employed person. The individual thus gained an unfair advantage over other employees. There were also tax advantages.

4. The Finance Bill and Social Security provisions will remove these tax and NICs advantages.


5. The Welfare Reform and Pensions Bill 1999 contained powers to make Regulations covering the detail of the NICs provisions. These Regulations were laid before Parliament on 13 March 2000 and became law on 6 April 2000.

6. Finance Bill 2000 contains the relevant tax provisions at Clause 59 and Schedule 12. The tax provisions will not become law until after the Finance Bill receives Royal Assent. After that, the tax provisions will apply from 6 April 2000.

7. This measure is expected to deliver yield of 350 million pounds in a full year, with cash receipts of #400 million in both 2000/01 and 2000/02 and #300 million in 2002/03.

8. Copies of both the tax and NICs legislation, guidance about the new rules, all earlier press releases, a list of frequently asked questions with answers and a Regulatory Impact Assessment can be found on the Inland Revenue website at or by writing to Personal Tax Division, 65 New Wing, Somerset House, Strand, London, WC2R 1LB

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