You will no doubt have heard about the IR35 “off payroll” working rules, which were originally due to be implemented in April 2020 but there were then delayed due to the Covid-19 pandemic to 6th April 2021.
What is IR35?
IR35 is the UKs tax avoidance regulations aimed at differentiating between legitimate “employed” workers and workers operating through a third-party intermediary, in most cases as a Limited Company, with the sole purpose of tax avoidance. In many cases such workers could and should actually be classed as “employed” workers.
Whose responsibility is IR35?
From April 6th it becomes the responsibility of the end client or user (as opposed to the worker) to determine whether the worker sits inside or outside of the IR35 rules). However, the new rules will apply to all organisations in the public sector and ‘medium or large’ sized businesses in the private sector who meet 2 of the 3 criteria below and are the end user:
- Annual Company turnover of more than £10.2million
- Annual Company balance sheet of more than £5.2 million
- More than 50 employees
If you do not meet two of the three above criteria then you have a small business exemption and the IR35 rules do not apply to you, the responsibility remains with the worker or contractor to determine their IR35 status. The ruling also does not apply to overseas companies or those without permanent establishment in the UK.
If the end user meets at least 2 of the 3 criteria a tool called CEST which can be found on Gov.uk can be used to determine whether contractors/workers fall inside or outside of the new rules.
The outcome of this test must be documented and shared with workers affected by the IR35 changes.
If the outcome is that they fall outside the IR35 rules, then no further action is needed UNLESS there are changes to the determining criteria.
If the workers are deemed to fall inside the IR35 rules from 6th April 2021 then they must be advised of their options as they will need to be taxed at source for income tax contributions and national insurance and this will need to be reported to HMRC through Real Time Information as you do with other workers you employ.
The Government has announced that its first aim will be to support businesses trying to the right thing by attempting to comply with the law unless there is deliberate evidence of non-compliance.
What about other employment rights?
Even if the determination of the worker’s status is that they fall inside the IR35 rules then this does not automatically mean they are a ‘worker’ in terms of employment law as IR35 determines the tax position only, not employment rights. Therefore, it doesn’t mean they will automatically be entitled to holiday pay, national minimum wage or other statutory payments. For further information on what a ‘worker’ is in terms of employment law, see last week’s blog. Seek advice where required.