IR35 changes in 2021
If you work as a contractor, or your business employs contractors, you will almost certainly have heard of IR35, or Intermediaries Legislation. Understanding this complex piece of tax legislation, on the other hand, is easier said than done, and upcoming changes will only make it more complicated. To find out how you can determine whether you or your contractors fall inside or outside IR35, and what you need to do to be IR35 compliant, read on. Whether you work in the public or private sector, everything is explained below.
What is IR35?
IR35 refers to the government's anti-avoidance tax rules that aim to fairly tax 'disguised employment', i.e. contractors working off payroll through an 'intermediary', such as a limited company. IR35 applies if the contractor would effectively be employed by their client if it weren't for the intermediary.
Off payroll working rules were first introduced in 2000 to tax contractors similarly to employed workers, removing any incentive to register falsely as a contractor in order to avoid tax. If you're deemed to be inside IR35, you'll pay the same PAYE tax as an ordinary employee.
For a more in depth look at the rules, visit our detailed guide to IR35.
IR35 in the public sector
HMRC made changes to IR35 for the public sector in 2017, placing the responsibility for determining whether a contractor came under IR35 or not on the public sector authority.
To assist with this, HMRC created a tool to help public authorities make the decision quickly and easily, called Check Employment Status for Tax (CEST).
From April 2021, public sector authorities will have extra responsibilities for remaining IR35 compliant. In addition to deciding the employment status of your workers:
- You will have to provide your determination and the reasons for it to the worker and the person or organisation you contract with;
- You'll also have to keep detailed records of your employment status determinations, including the reasons and any fees paid;
- And you'll need to have processes in place to deal with any disagreements that arise from your determinations, responding within the time limit of 45 days.
Failure to comply will result in the worker's tax and National Insurance contributions (NICs) becoming your responsibility, so it's essential you stay on top of your IR35 requirements.
IR35 changes in the private sector
Currently, if you work off payroll in the private sector, the intermediary is required to make an extra payment to compensate for the additional tax and NI that HMRC would have received on an equivalent employee's wages.
However, new IR35 rules are proposed for April 2021, bringing the private sector in line with the public sector and taking the pressure off individual contractors. These IR35 legislation changes will mean that from 6 April 2020, all public authorities and medium and large sized private sector clients will be responsible for deciding the employment status of workers.
For the purposes of IR35, private sector includes third sector organisations, such as some charities.
CEST and IR35
CEST stands for Check Employment Status for Tax, and refers to the government's digital tool allowing workers, employers and public authorities to assess whether an individual falls inside or outside the scope of IR35. It consists of a simple questionnaire and can be used for both public sector and private sector contractors, making it easy for both employers and contractors to identify their position with regard to IR35 and tax.
Whether you are a contractor, an agency, or an employer within the public sector or private sector, we can help you to understand your IR35 obligations and determine whether you or your contractors fall inside IR35 or not.
Get in touch here or at firstname.lastname@example.org or call 0114 274 7576 and our IR35 tax specialists will be happy to help.