A brief overview of IR35.
IR35 (also known as the ‘off-payroll rules’ or the ‘Intermediaries Legislation’) is a tax regime affecting contractors.
The IR35 rules were originally introduced in 2000 with the intention of ensuring that individuals who are working like employees but who operate via an intermediary, such as a personal service company (PSC), pay broadly the same tax and National Insurance Contributions (NIC) as an employee would.
Where a contractor’s assignment is assessed to be ‘inside of IR35’ which means that the contractor’s working arrangements have similar key features to that of an employee, income tax and national insurance must be deducted from the contractor’s pay.
Currently, in the private sector, it is the contractor’s PSC which is responsible for assessing whether the contractor is inside or outside of IR35 and to make the required tax deductions.
Due to increasing demands for flexible working and efficiency, the use of such off-payroll arrangements has grown, exacerbating the cost of non-compliance. As a result, HMRC estimate that the cost of non-compliance with the current IR35 rules in the private sector will grow to £1.3bn by 2023/24 in the absence of any change.
Changes are therefore being introduced to reduce the cost of non-compliance and to make it easier for HMRC to monitor and enforce compliance in the future.
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The changes for the private sector mean the end-client is responsible for determining the IR35 status of a contract with a PSC. This includes any existing contracts that continues beyond April 2021. The rules will be consistent with the changes brought in for the public sector in April 2017. This applies to all payments made by medium and large businesses from April 2021.
The responsibility for deducting and paying tax from the contractor’s pay will also move to the party which pays the PSC (usually, this will be an employment agency)
Where the end-client is a small company, responsibility for determining the IR35 status of a contract remains with the PSC and the changes do not apply. The Government have indicated that they intend to use ‘similar criteria’ to that found in the Companies Act 2006 to define a small business. Under current legislation this is broadly a business that has two or more of the following features:
- Annual turnover of not more than £10.2 million
- A balance sheet total of not more than £5.1 million
- No more than 50 employees
The size of the employment agency, if one is involved, is not relevant.
Buildspace + IR35 Audit =
Clients' peace of mind.
Build Space will be working closely with all clients to ensure everyone is prepared and compliant for the upcoming changes.
We have invested in an interactive Status Determination Software Tool and we are able to offer assessments of your current freelance portfolio and provide advice on the way forward from April 2021 onwards.
- Video conferences
- Face to face meetings
- Host IR35 events
Ultimately, this will give you piece of mind so that you are ahead of the curve and ready for the change. On the back of this presentation, we will be happy to conduct a full IR35 audit on your business so that you know your company has a clean bill of health to move forward with a new compliant process.