Following a years’ delay as a result of the COVID-19 pandemic, the new IR35 regime affecting those in the private sector will be implemented on 6 April 2021.
The introduction of the new off-payroll rules will affect millions across the UK placing new responsibilities on the employer (or end clients) to determine whether the worker is deemed as ‘inside IR35’ and subsequently take responsibility for calculating their tax and National Insurance Contributions (NICs). This article assesses the common questions relating to the upcoming IR35 changes.
What is IR35?
IR35 – or off-payroll working rules – were created to ensure contractors who undertake the role of an employee are liable for taxes in an effort to tackle a sense of unfairness amongst full time employees. IR35 applies to such individuals who provide their services via an intermediary such as a Personal Service Company (PSC). Off-payroll working rules were implemented in the public sector back in April 2017 and the Government announced this would be extended to the private sector from April 2020. This initiative was then delayed due to COVID-19.
From 6 April 2021, the end client (or fee payer) will need to make deductions for income tax, NIC and pay any employer NIC. The end client would be required to determine each worker’s employment status which would be communicated via a determination statement. The new IR35 rules will effectively shift the liability from the PSC to the end user. Note: the Government has made it clear that those ‘genuinely self-employed’ will not be affected by the changes.
Are there any exemptions?
There are exemptions for ‘smaller’ organisations who will not be required to determine the employment status of the workers they engaged. This related to businesses who:
- Employ less than 50 people
- Have a turnover below £10.2m per annum
- Whose balance sheet does not exceed £5.1m
What are the implications for businesses?
There are significant implications including:
- An additional administrative burden including status determinations and dealing with potential appeals;
- Potential higher rates of pay sought by workers to mitigate the increased tax burden; and
- Increased costs in the form of employer’s NICs.
Will employee rights be affected?
Statutory employee rights and payments will not be affected by the reforms.
Can a worker challenge an IR35 decision?
If a worker disagrees with the decision of the end client regarding their IR35 status, they have an opportunity to overturn the decision by requesting for a determination. The end client would then have 45 days to respond and must provide rationale for the original decision. From there, the end client would be required to confirm or change their decision. Failing to respond would render all liability with them.
What should you do next?
We would suggest you review your current arrangements with your contingent workforce and put processes in place to ensure consistent decisions regarding the employment status of those engaged. The Government guidance can be found here.
If you engage contractors and require tailored advice, please contact our Employment team via email or contact us on 020 8858 6971.