Contractor Information - IR35

IR35: Changes to rules on off-payroll working

With effect from 6th April 2021 new rules will affect businesses who engage the services of temporary workers (contractors) who work through their own limited company. This means that end hirers will be looking at every contractor they use and making a declaration about whether the assignment is “inside IR35”.

It remains the responsibility of any worker to pay the correct tax. However, HMRC will now have the capability of coming after the end-user if they think tax has been underpaid, so businesses using contractor services are looking very closely at their whole supply chain. This will affect you directly.

The rules state that if, but for the existence of an intermediary, the worker would be subject to PAYE and other employment deductions, then these must be deducted from gross pay.

The chances are clients will declare all contractors inside IR35 to mitigate their risk.

Determination:

If the work;

• Must be carried out by that person, who has no right of substitution in practice, ie single person limited company contractor.
• Is subject to the end-users supervision, direction or control by the client.
• Is paid by the hour /day, rather than for project work completed.

Then it is likely that it will fall inside IR35 from 6th April, and PAYE, NICs, sick pay, holiday pay, pension contributions must be deducted before the contractor is paid. It is important to emphasise that the end user will make this declaration, not you as the contractor.

There are exemptions to IR35, the main one is for small businesses (which have a strict legal definition):

• it has a turnover of not more than £10.2 million per financial year
• it has a balance sheet of not more than £5.1 million per financial year
• it has no more than 50 employees.

Points to consider:

• Working for more than one company will NOT make you exempt
• CIS does not make you exempt from IR35
• A right of substitution that exists only on paper, and not in practice, will NOT make you exempt.
• HMRC need the money and this is an easy target