IR35 Changes - April 2021

Date: 28th June 2020  |  Author: Sean Toomer

Contrary to popular belief, the rules surrounding IR35 are NOT changing. But what is changing, is who is responsible for deciding if your contract is ‘inside’ IR35 (bad) or ‘outside’ the IR35 legislation (good!).

What is IR35?

IR35 is not new – it’s been around since the year 2000 (that’s 20 years!). IR35 was designed to ensure that those self employed (or working through a Limited Company) under a Contract, working similar to employees, pay broadly the same tax and NI as an employee would. IR35 serves its purpose by implementing ‘rules’ that a Contract has to adhere to in order to be ‘outside’ IR35 (meaning, outside the legislation). If not, the Contract will be ‘inside’ IR35 (meaning, caught within the legislation), and the person providing that Contract (the worker) will have to be paid PAYE, just like an employee.

Those rules are:

  • The Worker has a right to substitution (can have someone suitably qualified in their place to provide the work)
  • The Worker decides their own working hours, not the Company
  • The Worker provides their own tools, not the Company
  • The Worker provides the same service to other companies
  • The Worker bears the financial risk, not the Company

And many more. Not one rule has more weight than any other, and to determine if your contact falls inside or outside IR35, you need to take an overall approach. You can also use the HMRC status check to see if your contact meets the criteria to be outside IR35 here.

So, what is changing?

Since its inception, it’s been the responsibility of the Worker to determine their own status, and if they are in or out of IR35. As of April 2021, this will now be the responsibility of the Company. The Public Sector saw similar changes implemented in 2017.

How will this affect me if I’m a Contractor?

You may find it more difficult to get a contract. We’ve seen a lot of Companies who use Workers via a Contract (typically a self employed individual operating through a limited company), get scared, and blanket all contractors on PAYE. The rules are not changing, but as the responsibility of who assesses the contract now lies with the Company, if a Worker is caught foul of IR35, it is the Company who bears the cost. This means all payments to the Worker would be deemed net of all payroll taxes – which would leave the Company with a very large tax bill! It’s because of this additional financial risk that many companies are shying away from using contractors.

What’s so good about Contracting anyway?

There are many, many benefits to contracting. If you’re a Contractor reading this, you’ll know what they are:

  • Flexibility
  • Better Pay
  • Increased Experience
  • Variety of work
  • Pay less tax than PAYE

So keep at it if you can!

If you’re a contractor, and you’re unsure about anything to do with tax or IR35, let us know and we’d be happy to help.

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