New off-payroll working rules come into force on the 6th of April 2021 for the UK. The rules were due to come into force last year but were delayed 12 months due to the pandemic.
What is IR35?
Originally introduced in 2000, IR35 describes legislation designed to combat tax avoidance by workers and the companies that hire them.
The off-payroll working rules can apply if a worker provides their services through their own limited company or another type of intermediary to the client.
An intermediary will usually be the worker’s own Personal Service Company (PSC). A PSC is a limited company set up to provide services of a single contractor who is usually the sole shareholder and company director of the business.
A Key Date: 6th April 2021
Before 6th April 2021, contractors providing services to the private sector were themselves responsible for deciding their employment status for tax purposes.
From 6th April 2021, the onus is on the employing organisations to assess contractors’ IR35 status.
All public sector authorities and medium and large-sized private sector companies will be responsible for deciding if the rules apply. Organisations will have to pay employment taxes on top of the fees paid to the contractor.
If a worker provides services to a small client in the private sector, the worker’s intermediary will remain responsible for deciding the worker’s employment status and if the rules apply.
To whom do the IR35 rules apply?
You may be affected by these rules if you are:
- A worker who provides their services through their intermediary.
- A client who receives services from a worker through their intermediary.
- An agency providing workers’ services through their intermediary.
How Does IR35 Work?
IR35 involves applying three main principles to determine employment status:
- Control – degree of control the client has over what, how, when, and where the worker completes the work.
- Substitution – is personal service by the worker required, or can the worker send a substitute in their place?
- Mutual obligation – a concept where the employer is obliged to offer work and the worker is obligated to accept it.
If IR35 does apply, then extra income tax and national insurance contributions must be paid. The employment taxes cannot be deducted from the contractor fees and are paid on top.
The government has responded to concerns from both businesses and the self-employed by announcing that firms that accidentally fall foul of the rules will not face fines during the first year of the new rules.
Whilst there is substantial information available on the government website, it is highly recommended that you seek legal advice for support.
Good luck and take care,
Dave Crumby
Founder
360 Talent Solutions