The “Intermediaries’ Legislation”, commonly known as IR35, was first introduced twenty years ago to counter perceived tax avoidance where independent contractors provided services to end users through an intermediary (typically, a personal service company or a partnership/LLP). IR35 essentially triggers a PAYE and national insurance cost when an otherwise independent contractor is deemed to be employed by the end client.
The new rules, which will be effective from 6 April 2021, will impact contractors working through a Personal Service Company (PSC); partnerships/LLPs; recruitment agencies and all large and medium-sized private sector end clients.
The onus to assess whether the relationship between the contractor and the end client is one of de facto employment currently lies with the PSC, apart from contracts with the public sector. Since 2017, public sector clients have become responsible for considering whether the contractor, or rather the contract, is caught by IR35. The burden of assessing the employment status of contractors is due to extend to the private sector, from this April.
The Government continues to believe that it is right to address the “fundamental unfairness” of non-compliance with the existing off-payroll working rules, but it also recognises that the reforms would be a significant change for both businesses and contractors. This is the reason it was postponed to April 2021 as, due to Covid-19, many were at risk of losing work with no pay.
This delay has also given HMRC time to improve guidance together with the online “CEST tool” (intended to check employment status) which last year was causing some confusion for many business owners who may be affected by the changes.
We must stress that the changes being introduced are to move the responsibility of establishing employment status from the PCS to the end-user client, and that existing IR35 legislation remains. Due care and attention should always be taken by contractors operating through an intermediary/PSC to make sure they are still not caught by the rules.
To sum up, from 6 April 2021 if a worker provides a service to a client in the private sector, the worker’s employment status and the decision as to whether or not the rules apply will be for the business to decide. All public sector authorities, medium and large- sized private sector clients will be responsible for deciding if the rules apply.
For more information please contact Rebecca Hall on firstname.lastname@example.org or 0161 236 6936.