IR35 Changes from 6th April 2021 – Do You Need to Take Action?
What is IR35?
The IR35 rules were introduced so that workers, who provide their services through their own Limited Company (Personal Service Company or PSC) , pay broadly the same Income Tax & National Insurance Contributions as employee’s.
If you are a PSC worker providing your services in the same was as an employee, you are working ‘Inside IR35’.
IR35 rules are also referred to as the ‘Off-Payroll Working’ Rules.
What is Changing?
Currently, if you provide your services through your own PSC, you have the responsibility for deciding your IR35 status, unless you work for the Public Sector (end user).
From 06/04/2021, if you provide your services through your own PSC, the responsibility for deciding your IR35 status will also be made by the end user if you work for a Medium or Large sized Company.
What is a Medium or Large Sized Company?
Two or more of the following must apply:
- Annual turnover more than £10.2 million
- Balance sheet total of more than £5.1 million
- More than 50 employees
Who Needs to Consider the IR35 Changes?
If you are a Medium or Large Sized Company that uses the services of a worker through their own PSC, from 06/04/2021 you will need to decide the IR35 status of all of your PSC workers.
If you are a PSC worker and you work for a Medium or Large Sized Company (client), from 06/04/2021, your IR35 status will be decided by your client.
If you are a PSC worker and you do not work for a Medium or Large Sized Company or Public Sector (client), from 06/04/2021, your IR35 status still needs to be considered and decided by yourself.
What Makes a PSC worker Inside IR35?
There are many factors which, on balance, need to be considered to decide on an IR35 status.
Factors such as:
- The amount of control the client has over the user e.g. hours worked, is the work task or project based, is the work supervised
- Is the worker allowed to send a substitute?
- Is there an ongoing expectation that the client will offer work and the worker will accept the work?
- Is the worker integrated into the clients business e.g. given office space, included on telephone extension lists, given a business e-mail address, performs work of a similar nature to other employed workers.
- Is there evidence that the worker is in business on their own e.g. provides their own tools, takes the risk for correcting mistakes, has other clients.
Making The IR35 Decision
The IR35 rules apply on a contract-by-contract basis. A worker may have some contracts which fall within the off-payroll working rules and some which do not.
The HMRCs Check Employment Status for Tax (CEST) tool should be used as a guide and the result printed/saved https://www.gov.uk/guidance/understanding-off-payroll-working-ir35
However, if you feel that the CEST tool is not detailed enough to fully consider all factors, then an independent review should be sought.
What Do Medium/Large Companies Have to do Once They Have Made The Decision?
The client must issue a ‘Status Determination Statement’ to the PSC worker detailing the decision and the reasons why.
Who Deducts the Tax & National Insurance if an ‘Inside IR35’ status is reached?
It is the business that has the responsibility for deciding the IR35 status of the worker that deducts PAYE/Employee’s National Insurance and also pays Employers National Insurance.
If the decision has been made by a Medium/Large Company (client), the client must deduct PAYE & NIC’s from the workers payment and also pay employers National Insurance to HMRC.
If the decision has been made by the worker, the PSC must calculate PAYE & NIC’s from the payment received from the client and also pay employers National Insurance to HMRC.
For further queries, please do not hesitate to contact us.
For the Government Guidance as an introduction to understanding IR35, please see https://www.gov.uk/guidance/understanding-off-payroll-working-ir35
For more detailed Government Guidance, please see https://www.gov.uk/topic/business-tax/ir35
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