The IR35 reforms – What you need to know

IR35, or off-payroll working, is a complex piece of Government tax legislation designed to deal with 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 an intermediary, such as a Personal Service Company (PSC), a company they may own.

The current legislation came into force in April 2021 and moved the onus for identifying these individuals to the main client, rather than the intermediary.

It was due to change, with the onus shifting back to the intermediary, under the previous Chancellor’s mini-Budget.

But since the Government U-turn on nearly all of those measures, the repeal to the reforms has been scrapped.

So, it is worth spelling out again what IR35 means for businesses and the contractors that they hire.

What changed in 2021

The rules for engaging individuals through personal service companies (PSC) changed and responsibility for working out if off-payroll working rules (IR35) applied moved to the organisation receiving an individual contractor’s services.

The changes means that, as the end client, you will need to determine the employment status of each contractor providing services under an intermediary, typically a contractor’s own PSC, and effectively determine if they fall inside or outside the off-payroll working rules.

When determining the status of an employee the contractor should consider:

• How they are being paid?
• Who is in charge of the individual in terms of how and where they work?
• What are the worker’s responsibilities?
• What benefits or expenses are they receiving?

The private sector rules only apply to medium and large-sized businesses. Your company will meet this classification if two or more of the following conditions are met:

• It has a turnover of more than £10.2 million.
• It has a balance sheet total of more than £5.1 million.
• The company has more than 50 employees.

If the above conditions are not met, your company will be a “small company” and, therefore, fall under the small company exemption.

The rules are complex, and this is not a comprehensive guide, so make sure you seek professional advice.

If you fail to make a correct determination and don’t pay a contractor correctly, you could be held liable for their Income Tax and NICs.

Need help and advice with IR35? Contact our team today.