IR35 was intended to simplify of the off-payroll working arrangements. For many who are currently self-employed or contracting through their own limited company, the IR35 rules have the potential to result in significant additional tax liabilities. The motivation for the push to formalise workers as employed has clearly come from a tax angle, but the implications could be much broader for many.
If caught by IR35 you will be paying higher levels of deductions to HMRC, but the implications will be much wider.
The IR35 tests have changed since they were enacted and are likely to continue to be modified. Cases continue to be fought in the courts and this Case Law will also change how workers are regarded for tax purposes. For some time now we have been reviewing cases with the following tests in mind:
Supervision - does the 'employer' supervise you in your working practices?
Direction - are you told what to do and how to do it?
Control - can the 'employer' force you to do things in a certain way?
However, more recent cases have also valued other aspects as being relevant. To gain a clear picture of worker status, specialist advice is required.
Different because you are
We pride ourselves on providing individually tailored services to our clients. Whatever your aspirations and priorities in business and life, we will be by your side with expert advice from local specialists. It is because your needs are unique, that the solutions we provide are distinct and personalised to you.
Changes from 2021
New off-payroll working rules mandating larger businesses to assess the IR35 status of their contractors came into force from April 2021.
The new rules were introduced to ensure contractors who are caught under IR35 pay broadly the same Income Tax and National Insurance contributions as employees. In addition, employer deductions are normally required by the person paying the contractor.
It is fundamental for businesses to have an understanding of the labour supply chains and put in place procedures to identify contractors and take reasonable care in operating the off-payroll rules.
Whilst smaller 'employers' are not caught by these changes, there is often a larger company in the supply chain who will insist on an employment relationship and as such many smaller companies are having to modify or lose contracts.
Companies contracting to public sector bodies were already caught by these rules from April 2017 and continue to be assessed under the new rules.
If you contract individuals through their own limited companies or self-employed workers, it is important that you are aware of the new rules and those which have been in force for some time. We do not expect this issue to go away and those affected need to be proactive in dealing with the impact.
I am concerned about IR35 and the changes to the rules coming in 2021, can you help?
We have seen tightening of the IR35 regulations affecting off payroll working for a number of years. Changes which were due to be enacted in 2020 have been deferred for a year until April 2021. Whilst aimed at larger companies, we anticipate the impact to trickle down to contractors.
We have developed an IR35 hub where we consider in detail the potential impact of IR35, what you can do to prepare and how to check your status.