Are you ready for the IR35 (off-payroll working) rule changes?

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April 2017 saw a significant change in IR35 legislation applied to Public Sector working practice. April 2021 will see the same enforcement applied to the Private Sector.

Firstly… What is IR35?

IR35 is tax legislation that HMRC introduced in 2000 to combat tax avoidance. It is designed to determine whether a temporary worker should be classed as employed or self-employed. If a worker is being paid on a self-employed basis but is found to be operating in what is considered an employed basis… They are ‘caught’ by this legislation and therefore will need to be paid on an employed tax basis.

What is changing in April 2021?

Just like the Public Sector in 2017, HMRC are shifting the liability. It will now be the responsibility of the Agency and/or the End Client to ensure the worker’s status is correctly identified. If found to be incorrect, HMRC can demand back-tax from the Agency/End Client. If an Agency/Client are paying many Self-Employed/PSC workers who are subsequently ‘caught’ by IR35, back-tax bills could be significant.

What determines IR35 status?

Determining IR35 correctly can be very complex as many things need to be considered. One starting point is asking questions to confirm the nature of the work...

  1. Does the contractor pick the hours/days they work?
  2. Can the contractor send a ‘substitute’ or another worker if they’re unable to work one day?
  3. Does the contractor provide all of their own equipment to complete the job?
  4. Does the contractor supervise themselves and dictate how they work?

If the answer is mainly NO to the above, action is required!

Are all End Clients liable?

“Small Companies” will be exempt from the change. 2 of the following must apply:

  • Annual turnover less than £10.2m
  • Balance sheet less than £5.1m
  • Number of employees less than 50

What do companies need to do?

  • Audit your workforce’s operating structures. How many are PSC’s?
  • Have a status determination process in place. Tools that can help with assessments are CEST (HMRC) and IR35 Shield.
  • Look at what compliant contracting alternatives are available post April 2021.
  • Confirm options for contractors.
  • Start implementing changes for the candidates to move into compliant models by early 2021, if required.
  • Risk assess the current supply chain and update supply chain contracts.

Take a look at this animation.

It gives you an overview on IR35 for contractors/candidates and what steps you may need to take to ensure you are operating correctly moving forward.

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