One of the biggest changes to businesses over the coming weeks is the new IR35 rules. So here’s my look at what they are and what they might mean for you.

 

What is IR35?

IR35 refers to the off-payroll working rules that aim to ensure that contractors doing work for companies, and the companies themselves, are paying the correct level of tax.

The IR35 rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay the same Income Tax and National Insurance contributions as employees.

In recent years HMRC believes that thousands of people employed via a Personal Services Company (PSC) or another intermediary have been paying incorrect taxes. They should be paying the same amount of tax as fully employed workers, rather than self-employed workers, that they currently align with.

Why is there a need for the changes?

The new IR35 changes have come about because the Treasury has missed out on income tax and National Insurance contributions from both those who have been claiming to be self-employed, and the company employing them. In fact, it has been previously estimated that non-compliance to IR35 would cost more than £1.3bn a year by 2023-24 if the issue isn’t addressed.

This means that not everyone is happy about the changes. A consultation that ran between 5 March and 29 May 2019 found that affected contractors could stand to lose up to 20% of their income as a result of the new rules.

So who is affected by IR35?

The biggest question is who will be affected by these changes?
The UK Government website suggests that you may be affected by these rules if you are:

However, if you’re still unsure whether you, or someone you employ, would fall inside the new IR35, there are three quick questions you can ask yourself to check:Who has control over how the work is completed?
If the company dictates your working hours and the location of where the work has to take place, you may be inside IR35.Is there a mutuality of obligations?
If the company is obliged to give the worker more work once they’ve finished a task, they may be inside IR35.Do you personally have to complete the work you do?
To be outside of IR35 there should be a substitute clause in your contract, and you should be in charge of that substitute.

When are the changes coming in and what do they mean?

After a year’s delay because of the pandemic, the new IR35 changes will now come into effect from 6th April 2021.
All public sector authorities and medium and large-sized businesses in the private sector will be responsible for deciding whether IR35 rules apply.
For contractors providing services to a small private sector client, the worker’s intermediary will be responsible for deciding if the new rules apply.

When it was announced there were a lot of queries around the new changes, so the Treasury conducted a review of the new rules to answer any questions, and these are the points they released.

Having a ‘light touch’ approach to enforcement
During the first year of the rollout, HMRC has been told not to place penalties on anyone with inaccuracies relating to the IR35 rules, but anyone who deliberately fails to comply can be charged.

Not using information for new investigations
HMRC won’t use any information submitted as a result of the changes to launch new investigations into PSCs for the tax years before 6 April 2021, unless there’s a reason to suspect fraud or criminal behaviour.

Making clients legally obligated to supply information
The government will place a legal obligation on clients that means they must respond to requests for information about their size from agencies or workers, so they can gauge whether they’re dealing with a medium or large-sized organisation.

Rules only apply to services from 6 April 2021
The IR35 changes will only apply to work carried out on or after 6 April 2021.

 

How Auria can help?

If you’re an employer and want to check if your contractors are affected by the new IR35 rules or you’re a contractor and want to discuss how this also affects you, please reach out to myself or one of the Auria team and we can help you successfully navigate these changes.