The countdown to comply with IR35
What is IR35?
IR35 is tax legislation that applies where an individual works through an ‘intermediary’, such as a personal services company, and provides their services to an end-user client.
Under IR35 if the intermediary didn’t exist and the individual looks like an employee of the client, then their assignment is deemed to be ‘inside IR35’, meaning that the individual’s pay should be subject to PAYE tax and National Insurance (NI).
Since IR35 was launched in 2000, the intermediary (the contractor’s company) has been required to make an IR35 assessment for every assignment they undertake to decide what tax rules apply.
From April 2017 the Government changed how the IR35 rules work in the public sector so that the organisation that makes use of a contractor’s services (the ‘hirer’) became responsible for assessing contractor’s IR35 status. If assessed as ‘inside’, the organisation that pays the contractor company has responsibility for deducting tax and NI from payments. The Government has decided that these new rules will also apply to the private sector from April 6th 2021.
With this in mind, we offer several specialist services: we can share with you information about how limited company contractors’ assignments should be defined from the outset, how contractors should be managed to ensure that their status is clear, and we are working closely with leading experts who can provide independent cost-effective assessment services.
Some good news to start with
- The Government believes that two thirds of contractors in the private sector are engaged legitimately outside of IR35 (please click here to view their consultation fact sheet). The even better news is that based on the case law over the last 10 years it has been found that 85% of the cases that have been tested have also been found to be outside of IR35. This data shows that blanket inside IR35 decisions or a move towards all contractors being engaged as PAYE are not necessary.
- InterQuest are experts in UK contract legislation and the IR35 negativity in recent news reports and commentary doesn’t actually reflect the reality of the situation. It’s not as bad as you may think and we are here to help you navigate your way through this change. We can guide you through an assured assessment process that will ensure that contractors who are genuinely outside IR35 can continue to provide services via their PSC.
What you will need to do
For all contractors who will be working on assignment with you beyond 5 April 2021 your organisation will need to carry out an assessment of their IR35 status (are they ‘in’ or ‘out’?). You will then need to share your decision with the agency who supplies the contractor’s services to you.
This should be done as soon as possible: contractors have the right to appeal against any decision that they don’t agree with, and any dispute will need to be resolved before 5 April.