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  • IR35 off-payroll reform FAQ's and useful links

    As a contractor or hiring business who works with contractors, you probably have many questions regarding the changes to IR35 this year. We've hopefully answered these below and if not there are some further resources and links to find out more information. 

    • What is changing in IR35 legislation for 2021? The new IR35 changes will be implemented in April 2021 for private sector contractors, transferring the responsibility of assessing IR35 from contractors to large and medium companies. This will apply to all payments made on or after the 6th of April 2021. Private sector businesses will be responsible for determining the IR35 employment status of all their off-payroll workers. (Contractors working in the public sector are currently responsible for making this decision.) Whilst the fee-payer (usually a recruitment agency) will be responsible for deducting the relevant tax and National Insurance contributions at source.

    • What is my responsibility as a hiring business? If you are a company who regularly hires contract workers, or hiring freelance workers for the first time this year, it is your responsibility to determine the employment status of the contract worker. This is done by providing a 'Status Determination Statement'. This statement will determine whether the contract worker is Inside IR35 or Outside IR35. If the contractor is hired by you, there is no intermediary or umbrella company and if the contractor's work is supervised with working hours determined by you, then the contractor is inside IR35. The contractor would be outside IR35 if they work through an intermediary and if the work is unsupervised with no further expectation of work. Once the employment status decision has been made, the client will have to pass the IR35 decision through the supply chain; to the contractor and the recruitment business. 

      How can I work out if IR35 applies to my business?If you are a small business that employs no more than 50 employees, have a turnover of no more than £10.2 million and a balance sheet total of no more than £5.1 million then the new IR35 rules do not apply to your business. If you are a medium to large-sized business and you are not sure IR35 changes affect your business and contractors, you can utilise the HMRC CEST tool https://www.tax.service.gov.uk/check-employment-status-for-tax/disclaimer. (So far this tool has come against some criticism and is likely to be amended).

      How do I prepare my business for the IR35 reform?Start by taking a look at your current workforce and identify individuals who are supplying their services through personal service companies, what are their roles? Talk to your contractors to see if the off-payroll rules apply to their role. Review payroll processes and how these could be applied for workers inside IR35

    • What does inside IR35 Mean?If a contractor is working for a business with no intermediary or umbrella company, and if they work is supervised with working hours determined by the client, then the contractor will be considered an employee for tax purposes. So if the contractor is deemed inside IR35 then the company will pay employee rates of income tax and national insurance (the same as full-time employees). This also means the contractor could be entitled to additional rights as an employee of the business such as maternity pay, protection from discrimination etc. (check this with your current employer) 

    • What does outside IR35 mean?If a contractor is working through an intermediary, umbrella company or limited company, if the work is unsupervised and work is completed with no further expectation of work then the contractor will be outside of IR35. The contractor working outside of IR35 is deemed self-employed for tax purposes and is responsible to pay self-employee rates of income tax. 

      How do the changes affect me as a contractor?If you are a contractor working through an Umbrella or intermediary, IR35 will not affect you as you are deemed inside IR35 and will be already being paid through a PAYE system. If you are a contractor that is registered as self-employed, but you are working as an employee for a client (they set your contract hours and decide on work taken) the end client will be responsible for paying additional tax that is due.

      Ultimately if you are a contractor working through a limited company you need to understand how the IR35 legislation works, as whilst the contractor holds no liability for their employment status, there may still be a deduction in earnings if placed on the payroll of the client. 

      To ensure IR35 doesn't apply to you, you must meet HMRC's definition of self-employment by making sure the client does not manage your work, the work is project-based and your contracts are duration based on completion of services. (As opposed to a continuous relationship of work). If your contract with the client is declared inside IR35 regulations, then it is possible to continue working through a limited company this way and it means the client will have to deduct income tax and NIC for this contract. 

      When it comes to take-home pay, for contractors working outside IR35, it is significantly higher than contractor take-home pay working inside IR35. Contractors working inside IR35, as you will be working for the client as an employee, your income will be subject to the same level of taxation as a full-time employee.  

      How do contractors prepare for the IR35 reform?

      HMRC CEST tool to check your employment status
      If you think you may be affected, you should seek a Status Determination Statement from your hiring company.

      What happens if the contractor or fee-payer disagrees with an IR35 decision?If any party, the contractor or fee-payer oppose the IR35 decision, the client has 45 days to respond and must provide reasoning for the decision made. If the end client fails to do this, the IR35 liability will transfer to them and they will then become the fee-payer.

      Quick snapshot:

    • Start by taking a look at your current workforce and identify individuals who are supplying their services through personal service companies, what are their roles?

    • Talk to your contractors to see if the off-payroll rules apply to their role.

    • Review payroll processes and how these could be applied for workers inside IR35.

    • Start by taking a look at your current workforce and identify individuals who are supplying their services through personal service companies, what are their roles?

    • Talk to your contractors to see if the off-payroll rules apply to their role.

    • Review payroll processes and how these could be applied for workers inside IR35

    • HMRC CEST tool to check your employment status

    • If you think you may be affected, you should seek a Status Determination Statement from your hiring company.

    • Start by taking a look at your current workforce and identify individuals who are supplying their services through personal service companies, what are their roles?

    • Talk to your contractors to see if the off-payroll rules apply to their role.

    • Review payroll processes and how these could be applied for workers inside IR35.