HMRC introduced IR35 (the ‘off-payroll working rules’ or 'the intermediaries' legislation') in 2000 to tackle what it calls 'disguised’ employment to combat tax avoidance. IR35 was brought about to ensure contractors pay the same levels of tax and national insurance contributions as an equivalent employee who is broadly doing a similar role. It applies to individuals who work through an intermediary like a Personal Service Company/Partnership/etc. providing services to an End Client and when the reality of the relationship is such that they would be ordinarily classed as an employee of that end Client if the intermediary was not in place.
When IR35 was introduced in April 2000, the responsibility of determining employment status for tax purposes sat with the contractor. Following consultation due to non-compliance, changes to IR35 were introduced to the UK public sector in April 2007, whereby the responsibility of determining employment status for tax purposes moved from the self-employed individual to the hiring organisation.
Gov.uk states that someone is probably self-employed and shouldn’t be paid through PAYE if most of the following are true:
- Small companies
- Overseas companies with no ties to UK entities
Up until April 2021, contractors will continue to be responsible for determining their status under IR35, however, as of the 6th April 2021 onwards, this responsibility will move from the contractor to the hirer. The extension of this tax legislation raises questions that each hirer should answer sooner rather than later if they don’t want to face potential financial penalties. Jump over to our and start your IR35 journey.
For more information on understanding the Off-payroll working Rules please visit: