With changes to IR35 in the Private Sector looming, there’s no better time to arm yourself with our free FAQ’s, Guides and Video guidance that you can reference whenever you need.
IR35 is legislation designed to combat tax avoidance and enforced by HMRC. In a nutshell, it requires contractors who are treated as the same as employees, to pay the same tax as employees.
Not at all, it was introduced in April 2000, for limited company contractors to comply with. Following an adjustment in 2017 for contractors in the public sector (whereby the public sector hirer took responsibility for ensuring compliance with IR35), changes are proposed for April 2021 (postponed from April 2020) whereby all end clients (except small businesses) will be required to make the determinations and, with support from their recruitment partners, ensure appropriate income tax and National Insurance (NI) deductions are deducted at source.
In order to qualify for the small business’s exemption, the business must satisfy 2 out of the following criteria:
- Balance sheet
- Number of employees
The change in legislation does not ‘outlaw’ working through Personal Service Companies (PSC). Although there may be some turbulence as we adapt to the new legislation, ultimately, there is nothing to prevent engagement with independent consultants, provided they either operate as truly self-employed, or additional tax is paid on their services.
It is the responsibility of the PSC Contractor to make an IR35 assessment and pay the appropriate level of tax
New off-payroll working rules in the private sector will transfer the assessment responsibility from the PSC contractor to the end user (unless the hirer is a small business entity) on 6 April 2021. Where the end user is not responsible for payment to the PSC, (for example where there is a recruitment business in the supply chain) the assessment outcome must be communicated to the fee payer (usually the recruiter) to ensure that the PSC receives the correct payment and deductions for PAYE and NIC’s are made, if the PSC is determined to be inside the scope of IR35.
They apply to any public sector, large and medium sized business entities and any worker supplying their services through a PSC (Limited Company).
‘Inside IR35’ is a term which usually means that the contract and working practices of the engagement are consistent with a ‘disguised employment’ relationship and should therefore be subject to income tax and National Insurance deductions at source, similar to an employee
‘Outside IR35’ means that the contract and working practices are consistent with an arm’s length, consultancy arrangement and not a ‘disguised employment’.
Assessment is based on a number of factors which have been built up via case law which include; supervision, direction and control, substitution, mutuality of obligation, financial risk and integration into organisation (amongst a few others). Within these categories, an accurate assessment will also consider (but is not exclusive to) tasking, length of engagement, absence procedures, provision of equipment, alongside a full review of the services being provided.
Written by our experts, these guides will give you the tools to understand the implications of IR35 as a contractor, recruiter or hirer.