What You Need to Know About IR35
At the start of the 2021/2022 financial year on April 6th, the IR35 reform came into effect. Previously scheduled to take place back in April 2020 but postponed due to the pandemic, most businesses and employers were most likely prepared for this new legislation.
However, we would like our clients to make sure they know what this means and how to ensure they are compliant.
What is IR35?
Originally introduced in 2000 by former Chancellor Gordon Brown, IR35 is part of the UK’s anti-avoidance tax legislation. Also referred to as “off-payroll working”, it has been designed to prevent the avoidance or reduction of tax and National insurance contributions (NICs) by employees disguising as contractors.
This reduction of tax and NICs is permitted when contractors are hired on a self-employed basis. However, when the working relationship between contractors and companies is more like an employment relationship, this HMRC loophole is no longer viable. Therefore, IR35 affects all contractors who do not meet HMRC’s definition of ‘self-employment’.
The Off-Payroll Working Rules
If a contractor is providing their services directly to the client, not through an intermediary, this means that they should be paying the same Income Tax and National Insurance contributions as employees.
If a contractor is providing their services through their own limited company or another type of intermediary to the client, such as a partnership, a personal service company, or an individual, the off-payroll working rules apply as their status is determined as self-employed.
It is the client’s responsibility to determine the status of the contractor and to provide evidence to show that they have taken responsibility when determining this status and deducting any tax or NICs under PAYE, as necessary. This is especially so when the client hires several contractors, as each separate status will need to be determined due to blanket decisions not being accepted.
If clients do not comply with IR35, HMRC have the ability to charge fines and interest for failure of businesses.
Does This Affect Me?
Generally, the new IR35 rules will only affect medium and large companies; small companies will still use the old IR35 rules where the intermediary will assess the contractor’s employment status and tax reductions.
Companies who work with agencies to supply their contractors, where there is an intermediary between the contractor and the agency, will also be affected by the IR35 changes.
Employment Law Solicitors at Caversham Solicitors
At Caversham Solicitors, we understand that new legislations can be both confusing and challenging. This is why we are here to help with any legal advice and support you need to know exactly where you stand.
Our employment law solicitors keep up to date with all the regulations you need to know and understand that not every company is the same, so will tailor their guidance to suit you and your IR35 requirements.
If you have any questions or queries, please don’t hesitate contacting our team today.