IR35: new off-payroll working rules

by Michael Blaken

Published on 24th March 2021

After months of delay due to the pandemic, the new off-payroll working rules are finally coming into force. From 6 April 2021– the new financial year – the new rules, also known as IR35, will apply to contractors and temporary workers in the private sector. They already apply to public sector workers.

New off-payroll working rules come into force for private sector

What are off-payroll working rules?

IR35 is designed to combat tax avoidance by workers supplying their services via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used. Such workers are called ‘disguised employees’.

If you work for a company in the public sector, it is their responsibility to decide your employment status.

Until the rules change on 6 April, and you work for a company in the private sector, then it is your intermediary’s responsibility to decide your employment status for each contract. The intermediary may be your own limited company or perhaps a recruitment company.

However, from 6 April, if you are a contractor you may no longer need to determine your own IR35 status, but instead this may fall to the end user of your service (i.e. the company you are contracted to work for) as happens at the moment with the public sector.

We say ‘may’ because who determines your status will depend on the size of the company you are contracting for.

If you are working for a medium or large-sized private sector client, then this client will determine you status. If you are working for a small private sector client, it is still your intermediary’s responsibility to decide your employment status.

Businesses which count as ‘small’ and therefore outside the scope of the new IR35 rule must meet at least two of the following criteria:

  1. Turnover less than £10.2m
  2. Fewer than 50 employees
  3. Balance sheet of less than £5.1m

If your company is caught by these new IR35 rules then it is up to you to assess each contractor to decide if IR35 applies. If it doesn’t, you need to tell the individual worker. However, if it does, then the intermediary (such as a recruitment agency) must be informed and it is its responsibility to deduct tax and NICs.

To assess whether or not a worker is affected by IR35, you will need to use an online tool called CEST – Check Employment Status for Tax.

There is an appeal process if a worker feels they have wrongly been categorised.

Clearly, the new IR35 rules will have a far-reaching effect for workers and employers alike. One piece of good news is that HMRC has said it will be lenient for the first year, to allow the rules to bed in. Employers will “not have to pay penalties for inaccuracies in the first 12 months relating to the off-payroll working rules, regardless of when the inaccuracies are identified, unless there’s evidence of deliberate non-compliance”.

If you run a business or are a contractor and want some advice on IR35, our accountancy team would be delighted to help. Please get in touch. We work with business owners across Swindon, Cheltenham, Wiltshire and Gloucestershire.

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