IR35 doesn’t affect Key Portfolio workers – here’s why!

The intermediaries legislation (also known as the ‘off-payroll working rules’ or IR35) is a law that’s intended to stop tax avoidance by contractors who provide services via their own personal service company (PSC). It does this by obliging them to pay the same tax and NI as an employee, if their working practices most resemble those of an employee.

An umbrella company is an alternative to a PSC. Those who join one do not become directors of their own limited companies; they become employees of an umbrella company. As such, they already pay the same income tax and NI as any other employee, because that’s exactly what they are.

Therefore, IR35 is not applicable when a worker is paid through an umbrella company.

This is confirmed by HMRC, whose guidance includes a list of situations which are outside the scope of IR35. It includes: ‘the off-payroll working rules won’t apply if the agency, umbrella company or similar third party that supplies the worker directly employs them and deducts Income Tax and NICs.’

We can confirm that Key Portfolio (KPPES Ltd) is an umbrella company. We employ the worker and treat their payments as employment income, meaning they’re subject to the deduction of PAYE tax and NIC. We give them an employment contract, take on all employment responsibilities for them, run their payroll and provide access to a range of benefits (such as sick pay, maternity pay and shopping discounts). This puts them firmly outside the scope of IR35.

In other words, when a contractor is employed by Key Portfolio, their IR35 status is irrelevant.