IR53 changes come into force in April 2021
After a year-long delay, changes to the IR35 off-payroll working rules will take affect from 6 April 2021. HMRC introduced the off-payroll working rules – also known as IR35 – in 2000 to tackle what was called as “disguised employment”. Contractors have been able to provide services via an intermediary company- Personal Service Company to avoid being classed as an employee for tax purposes. The benefits to this were two-fold, it gave greater tax efficiency to the contractor and meant that the business hiring the contractor did not have to pay employers’ national insurance contributions or give contractors employee benefits.
When IR35 was first implemented it was the contractor’s responsibility to assess their own status for tax purposes. In 2017 this changed in the public sector so that when IR35 applied the business engaging the contractor was responsible for working out the employment status of the contractor – essentially determining whether the contractor is genuinely self-employed or whether they are actually an employee. Up until now the changes to the rules have only applied to payments made by or on behalf of public authorities to contractors. But from 6 April 2021 these changes will also affect the private sector.
Some small private sector companies are exempt – if they meet two of the following criteria:-
- Have an annual turnover of no more than £10.2million;
- Have a balance sheet total of no more than £5.2 million;
- Have no more than 50 employees.
But for those companies who do not have exemption they are required, from 6 April to:
Assess the contractor’s status for tax and then tell the contractor if they believe that they ought to have employee status. If the contractor does have employee status, then the client business is expected to apply income tax and NIC deductions.
What will cause issues is that the legislation surrounding the IR35 is complicated. HMRC have created a tool for checking employment status (CEST) but its accuracy has been criticised. There is no doubt that this will cause problems for businesses already beleaguered with dealing with the Covid pandemic!