New changes to IR35 Legislation coming into force next month
The IR35 legislation ensures that independent contractors pay the same tax and National Insurance contributions as an equivalent employee. New changes to IR35 legislation will be implemented next month – 6 April 2021 – for private sector contractors, meaning that the responsibility to assess IR35 will pass from the independent contractor to large and medium companies.
Medium and large companies will need to determine if the “Off Payroll Working Rules” apply. These apply when a worker provides services to a client through an intermediary, often a Personal Service Company, but would be classed as an employee if they were contracted directly with them. Until now, it was the responsibility of the independent contractor to determine their own employment status and assess if IR35 applied.
If a contractor is deemed to be inside IR35, the end-user will be liable for the tax and National Insurance contributions. If deemed outside IR35, then the end-user must ensure when reaching its status determination assessment that reasonable care was taken during the decision-making process and that the decision itself is reasonable.
This reform has already been effective in the public sector since 2017. It means that a contractor who falls within IR35 legislation is likely not be in business on their own account and there would be an arguable case for the contractor to assert their employment status was at least that of a worker entitled to associated employment rights such as holiday pay under the Working Time Regulations. Employers need to look carefully at whether their prospective hire really is an independent contractor and what the risk to their business is of that person asserting they have a different employment status. This can create associated liabilities such as paying holiday pay, if a status determination assessment puts that person inside the IR35 scheme.
There is though, a small company exemption. To determine if this legislation applies, a medium to large company will have two or more of the following features: (i) a turnover of more than £10.2m, a balance sheet total of more than £5.1m; and/or 50 employees or more.
At didlaw, we can help employers to understand the employment status of potential and current hires and help you to assess what associated liabilities may arise.
This blog was written by Anita Vadgama, Legal Director for didlaw.