Private sector IR35 reforms explained.
The Government announced in July that the IR35 reforms relating to ‘off-payroll’ rules will be extended to the private sector on 6th April 2021, directly affecting a large number of contractors.
But what does this mean, what should you do to comply with the new legislation, and how can we help?
IR35 is a piece of legislation introduced in 2000 to counter tax avoidance by personal service companies. Contractors often provide their services via limited companies for tax efficiency reasons for both them and their clients. However, tax efficiency isn’t the only reason, companies choosing to use contractors will often insist on using a limited company as they will be able to secure professional indemnity insurance and public liability insurance to cover against any claims they would make against the contractor.
Unfortunately, some contractors (and their hirers) might try to take advantage of the tax efficiency of working through a limited company, when in practice the contractor is essentially working as an employee.
The benefit for employers hiring workers in this way is that they don’t have to pay employers’ National Insurance contributions or give contractors employee benefits like bonuses, pensions and training. The benefits for contractors include the ability to move free from one project to another without serving notice periods; personal liability is limited should things go wrong. A risk for contractors is the sometimes short notice of a contract ending and lack of access to rights and protections enjoyed by employees like minimum wage, and holiday and sickness entitlements.
So, IR35 assesses whether contractors are for all intents and purposes employees when they take on work for clients.
If you’re a contractor who’s ‘inside IR35,’ HMRC sees you as an employee and you face an income tax and National Insurance burden, just as employees do. You don’t face this if you’re ‘outside IR35.’
The IR35 reforms will see every medium and large private sector business in the UK become responsible for determining the IR35N status of any contract worker. The private sector IR35 reforms were originally set to take effect from April 2020 but the move was delayed by the government until next year in light of the coronavirus crisis.
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
If the rules apply, tax and National Insurance contributions must be deducted from fees and paid to HMRC.
With the right IR35 mitigation strategy, your business and contractors you work with will stay on the right side of the forthcoming private sector IR35 reforms in April 2021. Adjusting your work practices is just as important as making your contracts IR35 friendly, for example no enforced working hours or location and no restrictions on who people can work with.
We Do Code will work with you to put in place a tailored IR35 mitigation strategy that works for you, your business and any contractors currently working with you that you wish to retain.