IR35 Changes – What Does This Mean For My Business?
From 6 April 2021, IR35 will change. This is because the Government are cracking down on companies who employ ‘contractors’ or ‘off-payroll workers.’
What is it?
IR35 is tax legislation that aims to stop individuals from avoiding tax by supplying their services to companies through an intermediary, like a limited company. And it’s not just individuals who have been saving tax but businesses who have paid contractors when they possibly should be classed as employees and therefore not paid employers’ National Insurance Contributions (NICs), deducted tax at source or provided employment benefits like paid holidays, pensions or sick leave.
IR35 has existed since 1999 but up until 2018, many contractors were able to take advantage of the ability to choose their tax status, even if essentially, they should have been classed as an employee. Unsurprisingly many contractors decided that it didn’t refer to them and classed themselves as outside IR35. This way they could have the benefits of full-time work, with paying very limited taxes.
The latest HMRC figures estimate that as much as £1.3 billion in taxes each year is lost because of contractors ignoring the rules.
What’s changed?
HRMC have recently updated IR35 legislation to now also apply to private businesses. If you use contractors (off-payroll workers), you have until 5 April 2021 to decide whether these people fall inside or outside of IR35. As a business owner, you will be responsible for setting the tax status of your contractors. If you get it wrong, you will be responsible for tax that should have been paid, fees and penalties.
What does it mean?
If you have workers who fall inside IR35, these workers must pay Income Tax and National Insurance Contributions, which they may not have been paying before. In addition, as the business, agency or third party involved, you would need to deduct income tax and employee National Insurance Contributions (NICs) and pay employer NICs to HMRC.
If any of your workers fall outside IR35, they won’t face any additional fees or penalties, and neither will you. People in this category tend to be a one-person business, who operate independently from their clients and choose when, where and how they work,
What do I need to do?
You need to review immediately all workers associated with your company that are not on your payroll and decide if they are inside or outside of IR35. However, please be aware that small businesses are exempted from these rules.
To get the small business exemption your business will need to satisfy two or more of the following requirements:
- It has an annual turnover not exceeding £10.2m
- It has a balance sheet total not more than £5.1m
- It had an average of no more than 50 employees for the company’s financial year.
How can we help?
We can assist businesses assess their contractor (off payroll workers) status and draft Contractor Agreements for businesses and individuals. For help and/or further information, please contact: caroline.robertson@actifhr.co.uk