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Are you ready for IR35 changes in April 2021 ?

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Are you ready for IR35 changes in April 2021 ?

From 6th April 2021 new rules regarding IR35 in the private sector, otherwise known as the ‘off-payroll working rules’, will kick in.  This means that every contractor working through their own PSC and every agency and end client need to be aware of the changes and what to do next.

The purpose of the legislation is to establish if a contractor is a disguised employee and now the IR35 status for the contractor needs to be established by the end client and not the contractor.

We have tried to keep this information short and selective but for full HMRC guidance please see below and at the bottom of this page you will see a link to ‘IR35 Shield’ who are market leaders in IR35 Assessments:

HMRC Guidance for agencies :

https://www.gov.uk/guidance/april-2020-changes-to-off-payroll-working-for-clients

HMRC Guidance for workers:

https://www.gov.uk/guidance/understanding-off-payroll-working-ir35

From 6th April 2021 end clients are responsible for determining the employment status of their contractors under the new IR35 rules, this used to be the responsibility of the contractor.

Responsibilities and Obligations of hiring organisations

  • Organisations engaging contractors will need to take ‘reasonable care’ in determining a contractor’s IR35 status.  
  • Having taken reasonable care, clients must carry out an IR35 assessment and issue a ‘status determination statement  to both the contractor and the next party in the supply chain (who will be responsible to pass this on in the chain until it reaches the fee-payer). In most cases, this will be the recruitment agency.  The statement must include both the status decision made AND the reasons behind the decision.
  • Until such time as the client provides an appropriate statement to the relevant parties, the client will be deemed as the fee-payer and thus liable for any failure to deduct the appropriate taxes.

Responsibilities and Obligations of Recruitment Agencies

  • Upon receipt of a ‘Status Determination Statement’ from the client, recruitment agencies will be required to either pass the statement along the supply chain to the fee-payer, or where the recruitment agency is the fee-payer, deduct the appropriate tax and NICs from the contractor’s fee before making payment (via an umbrella company if needed).
  • You will also be responsible for paying the relevant Employer’s NI and Apprenticeship Levy to HMRC (Via an umbrella company if needed).
  • The liability will sit with the fee-payer which will in most cases be the recruitment agency, unless the client fails to adhere to their obligations.

What if I am a small Business

Medium and large businesses hiring off-payroll workers will need to consider the rules whilst small businesses will be exempt:

“The government intends to use similar criteria to define small businesses as is found in the Companies Act 2006.”

A small business is defined as a company which satisfies two or more of the following requirements:

  1. has an aggregate net turnover less than £10.2 million
  2. has an aggregate balance sheet total less than £6.1 million
  3. has less than 50 employees

Businesses will be legally required to provide information regarding the size of the business to agencies and contractors upon request.​

If you are new to contracting then the information below will be helpful:

What is IR35 

Introduced in 2000, IR35 legislation is used to determine the employment status and the subsequent tax status of an individual. Depending on your contractual arrangements and working practices you will be determined as either inside or outside of IR35. If you are deemed inside IR35 your tax status is essentially one of a typical employee whose taxes should be deducted at source and paid to HMRC. If you are deemed outside IR35 you will have the opportunity to operate through a Limited Company where your payment arrangements are more flexible, giving you the option to receive dividend payments. It is important to note that in checking the IR35 status, both the contract and working practices must be reviewed and as such, it’s important you take professional advice on this matter.

What is Supervision, Direction and Control (SDC)?

Supervision, Direction and Control (SDC) is a very significant term for contractors to be aware of. It essentially refers to the interpretation of a contractors working arrangements on whether they perform their work under the supervision, direction and control of another person. Determining whether SDC does or doesn’t apply to a contractors working arrangements will help to determine if they fall inside or outside of IR35 (which will then determine the contracting options and tax status).

What ​is Mutuality of Obligation (MOO)?

Is the client obliged to offer you work and are you obliged to accept any work offered?

Mutuality of obligation, or MOO, is one of the IR35 key tests of employment used by a tax tribunal or court to establish whether a contractor is in fact a disguised employee and therefore subject to the provisions of IR35. If found inside IR35 during an investigation by HMRC or in a subsequent court or tribunal enquiry, contractors potentially face steep bills for additional income tax, National Insurance Contributions (NICs), interest and penalties. Put into context, mutuality of obligation is generally considered by experts to be a less strong IR35 factor compared to control and substitution but is still seen as a significant pointer towards employment if found to apply.

Why do Public Sector contractors us umbrella’s?

A. ​If you are a contractor who works for a public-sector client it is likely you will be required to use an umbrella company for your contracting / payment arrangements. This is due to reform in legislation introduced in April 2017 which made public sector bodies responsible for any un-paid taxes by contractors operating through their own Limited Companies whilst working on public sector contracts. Due to the associated risks many public sector bodies now insist their contractors use PAYE umbrella providers where their taxes are paid at source, reducing the risk faced by the public sector entity for unpaid taxes.

IR35 Assessment – ‘Status Determination Statement’

When the time comes and you need to assess your IR35 status or the status of a contractor there are many online tools/services you can choose from to look through your contract and provide the ‘status determination statement’ that is required.

A single IR35 Assessment will be around £60 or you can choose an IR35 service that charges a monthly fee of around £20-£30 for unlimited assessments/determinations and most importantly compliance and also provides tax investigation insurance. 

We cannot recommend which IR35 service you should use but we would advise that you use a service that has been around a few years and that clearly has a great reputation in IR35.

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