What is IR35?
To put it simply, IR35 legislation is designed to close a tax loophole where individuals avoid paying employee income tax and national insurance by using a ‘middleman’ correctly known as an intermediary, and paying themselves dividends.
What are the changes to IR35?
If you are a medium or large company in the private sector and you contract with personal service companies for the provision of workers’ services from 6 April 2021 you will have to account for tax and national insurance through PAYE.
Responsibility to determine IR35 status will shift from the individual or personal service company to the recipient of services.
How do I know if this affects my business?
Small companies will be excluded from this change – the Companies Act defines a small company as having two or more of the following features:
- Turnover of £10.2 million or less.
- A balance sheet total of £5.1 million or less.
- 50 employees or fewer.
IR35 rules apply if you are a medium to large company and:
- An individual provides a service for a client (or is obliged to do so).
- Those services are provided under arrangements involving an ‘intermediary’.
- The circumstances mean that if an individual would be ‘employed’ for income tax and national insurance purposes.
What can I do to prepare my business for the change?
Before April 2021 consider:
- Which individuals supply your services through personal service companies
- Review contracts with these individuals to confirm they pass the employment test
- Keep records and ask the contractor to provide evidence that may support contractor status – e.g. records of any substitutes provided
- Check the contractor’s documentation is in order – is there a contract of employment between individual and the intermediary?
- Ensure future procurement arrangements are set up to comply with the new rules
Find out more
If you would like further advice you can contact our specialist employment team.