The recent 2020 budget has implemented important changes to the way employment tax is calculated for workers who receive payments from a client via an intermediary. To help understand this recent change and how it could affect you, read on...
What is IR35?
IR35 is a piece of tax legislation in the UK, that was introduced in 2000 to close the loopholes in which workers could use the set up of a limited company structure, to pay less tax. Any contractor deemed to be an employee must pay the same level of tax as normal employees.
What does it mean to be inside IR35?
Simply put, to be “inside IR35”, means you are considered to be an employee of your client (regardless of your self-employed status). This means you are liable tax and NI contributions under PAYE. If you are a worker who provides your services through an intermediary, you could be considered to be inside IR35. Broadly speaking, if there is an obligation for you to accept work that your client provides, and you have a rolling contract with your client, then it indicates that your contract would be considered within IR35
What does it mean to be outside IR35?
To be deemed working outside IR35, you will be operating legitimately as a contractor, and will have a contract for services rather than a contract of service. Crucially, if you can send another person to undertake the services agreed in the contract, do not have a rolling contract with your client, and have control over how and when you work, you could be outside IR35.
Who is responsible for determining if IR35 applies?
When deciding if IR35 applies to your position, a key point to note is that up until 6th April 2021, if you’re working for any client in the public sector, it is your client’s responsibility to determine if you are inside IR35 or not. However, if you are working for a client in the private sector, it is the responsibility of your intermediary to determine your employment status. From 6th April 2021, there are noticeable changes for determining responsibility. If you are working for any authority in the public sector, and a medium or large sized private client, they will be responsible for determining IR35 status. However, if you are working for a small private sector client, your intermediary will be held responsible for deciding if IR35 applies. More information on checking your employment status can be on the Government website.
Do the changes come in effect immediately, or is there a period of grace?
It is important to note there will be no soft-landing option. Immediate compliance is mandatory, and HMRC will be taking enforcement action where necessary. With this in mind, if you are uncertain as to if you are inside IR35 or not, we recommend you seek professional advice from your accountant or financial advisor.
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