After the postponement of IR35, in response to the Coronavirus outbreak, the changes to off-payroll working for those in the private sector will take place in April 2021.
With just a couple of months to prepare and plan, the responsibility for adhering to the rules will move 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.
Clear Vision Financial Management, accountants based in Romsey and Poole, can advise you on the IR35 position to ensure you are complying with the new rules.
Sean Daniel, Managing Director said “The new IR35 rules for the private sector could affect lots of contractors, especially since the outbreak of Coronavirus which has seen many people losing their jobs. The option to turn to freelance work will be limited as many businesses will be worried about using a contractor due to the implications of IR35”.
If you need any help or support with any of the above, please get in touch with the Clear Vision Financial Management team, call us on 01794 330025 or email us.