The last few months have seen the IR35 reforms repealed and then reinstated, creating confusion about where contractors and those who engage their services stand.
As of this moment in time, the 2017 and 2021 reforms to the IR35 and off-payroll rules remain in place.
This tax legislation is intended to prevent a form of tax avoidance known as disguised remuneration.
This is where individuals attempt to avoid paying the full rate of Income Tax and National Insurance Contributions (NICs), by providing their services through their own intermediary, such as a Personal Service Company (PSC).
The engager’s responsibilities
The IR35 rules exist to ensure that an individual providing services via a PSC, and who would have been an employee if they were providing their services directly to an end client, pay broadly the same income tax and NICs as a ‘regular’ employee would.
Under this legislation, all medium and large-sized private sector end clients are responsible for deciding a contractor’s employment status, as opposed to previous rules, where freelancers decided their employment status themselves.
The official guidelines for businesses affected by these rules are as follows:
If the determination results in a contractor being within the IR35 rules, it is your responsibility to deduct and pay tax and National Insurance contributions to HM Revenue & Customs via PAYE.
Where an employer fails to correctly identify a disguised employment scheme, the worker’s tax and National Insurance Contributions become their responsibility.
Is your business affected?
According to the Companies Act 2006, a business is defined as ‘medium’ or ‘large’ if it meets two of the following criteria:
Link: Understanding off-payroll working
