What is it and who does it apply to?
A year after it was delayed, new reforms to IR35 will come into effect on April 6th, 2021. These new IR35 tax changeswill come into force in the private sector, meaning contractors who provide their services through their own limited company, or another type of intermediary to the client, will now pay tax and National Insurance contributions differently.
Introduced in 2000, the IR35 rule was brought about to assess, for the purposes of paying tax, whether a contractor was genuinely operating as a contractor rather than what they deemed a ‘disguised’ employee. If the contractor is deemed to be a ‘disguised employee’ then IR35 rules will mean they now pay broadly the same Income Tax and National Insurance contributions as employees.
Since 2000, this has been amended a number of times by HMRC, and new changes to IR35 will now also apply to the private and third sector.
So, what does that mean for our clients and candidates?
If a contractor sits inside of IR35 (i.e. they would be seen as an employee if they were providing their services directly to the client) then off-payroll working rules will apply, and the contractor will be deemed an employee for tax purposes, Income Tax and National Insurance contributions must be paid to HMRC, alongside, if applicable, the Apprenticeship Levy.
IR35 reform to include (Private & Third Sector)
From April 6th of this year, the off-payroll working rules will also apply to the private and third sector. HMRC further amended the legislation so that in addition to companies classified under the freedom of information act being affected, the rules will apply to all medium to large organisations with small companies being measured by the criteria of the Companies Act of 2006.
As for the public sector, all clients in the private and third sector will now be required to issue a Status Determination Statement to the candidate, determining whether they fall inside or outside the legislation.
New rules to IR35 in 2021
Since the roll out of new procedures relating to off-payroll working rules was delayed last year, HMRC have made further changes to the legislation, especially around the process of determining the status of the role. It is no longer up to contractor to provide this determination, but rather but the end user with the responsibility of unpaid taxes falling on them.
Hiring under the new off-payroll rules
With the new changes to off-payroll coming into effect across the private and third sector on April 6th, it is particularly important that clients and candidates keep informed about their respective responsibilities.
If you are concerned about potential implications to yourself or your business as a result of IR35, VANRATH can help!! Our recruitment specialists are highly knowledgeable in the area and have also partnered up with leading IR35 specialists Qdos to ensure we can provide support.
However, should you have any immediate questions about IR35, please contact VANRATH on 028 9033 0250.