IR35 changes have finally been introduced

Published by Sandra Smith on

IR35 was introduced by the Government in order to tackle tax avoidance from ‘disguised employment’.

The new legislation was due to be introduced in April 2020, however in response to the Coronavirus outbreak, the changes to off-payroll working for those in the private sector were put back a year to April 2021.

The new rules have now been in place for nearly two months with the responsibility for adhering to the rules moving to the end user and recruitment agencies instead of the contractor.

What is IR35?

This tax regulation was first introduced in 1999, it relates to contractors who may be disguised employees. Those businesses who are using contractors as employees will be forced to pay employee like taxes.

It was introduced to stop businesses using disguised employment as a method to avoid paying employee costs such as employers’ NI, sick pay and holiday pay.

What are the changes to IR35?

With effect from April 2021, the status of the contractor will be determined by the end user not the contractor. If the end user believes IR35 should apply in the engagement of the contractor then payment to the contractor will be taxed at source, just like an employee.

There are some exemptions to the rules such as small businesses, this will mean the contractor is liable for IR35, just as they were previously. The criteria for a small business are as follows:

  • Less than 50 employees
  • Less than £10.2m turnover.
  • Less than £5.1m on the balance sheet.

The arrangement with contractors will still need to be reviewed as HMRC will continue to enforce the existing rules in place. If HMRC decide that IR35 did indeed apply, then the contractor will be liable for the tax.

Sean Daniel, Managing Director said “The new IR35 rules have now been in place for two months, employers need to ensure they are adhering to the rules in order to avoid a penalty. With businesses already affected by Coronavirus, the option to use contractors will be more limited due to implications of IR35”.

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