IR35 for the Private Sector
IR35 was due to be extended to the private sector in April 2020 but was postponed due to Covid-19. Which means, given the intervening 12 months, many employers may now need to prepare anew for 6 April 2021 when the new rules will be implemented.
IR35 legislation was introduced initially to the public sector, with the intention of the extension to the private sector being to ensure that workers who provide services through an intermediary, often a personal service company(PSC), but who effectively work as employees, pay roughly the same taxes as employees.
Previously the PSC was liable to assess whether there was a requirement to account for tax and national insurance contributions. However, from 6 April 2021 that liability will generally shift to the end user business, which becomes responsible for not only assessing whether the worker falls under the IR35 legislations, but is also responsible for deducting and accounting for income tax and national insurance payments. If your business employs contractors via an agency, the liability still rests with your business to assess. HMRC have announced that customers will not have to pay penalties for inaccuracies in the first 12 months of the off-payroll working rules, unless there is evidence of deliberate non-compliance.
If you are a business using contractors, either directly via PSCs or via an agency, you may now be liable to assess whether IR35 applies. Part of this assessment will involve deciding whether the contractor should be treated as an employee for these purposes, PSC notwithstanding. There are a number of factors to consider in making this assessment, such as personal service, ability to provide a substitute, method of payment, level of control and taxation. However, there is unfortunately no “one size fits all” approach.
If you determine that IR35 does apply, you face increased business costs in the form of employer national insurance contributions and higher rates of pay being requested from contractors due to their increased tax burden.
To discuss your options, please call Wendy Davidson on 01328 852831.