The changes to the IR35 rules were due to come into effect on 6 April 2020, however, this was postponed due to the havoc the COVID-19 pandemic caused.
We caught up with Richard Allen from Champion Contractors, an expert on all things IR35, to find out what exactly is changing and how the IR35 changes will affect our candidates.
Why were IR35 changes introduced?
IR35 was introduced in 2000 to ensure that individuals operating via a personal service company (PSC) were paying the correct levels of income tax and national insurance contributions, relative to their employment status.
The basis of the legislation is to assess the nature of the direct relationship between the end client and worker (removing any intermediaries) and identify disguised employees operating through their own PSC.
The responsibility for assessing IR35/employment status lay with the contractor until 2017 where changes in the public sector moved the responsibility to the end-user/client.
What will change from April 2021?
The changes that were made in the Public Sector will be introduced into the Private Sector however due to the issues that were caused by the roll-out, HMRC have made some important changes that should help for a fairer process.
End clients will need to:
- Demonstrate “reasonable care” when considering the employment status of their contractors
- Issue a Status Determination Summary Statement (SDS) that clarifies the reasons behind the given determination
- Ensure that the determination is passed down through the supply chain
- Have a process for the contractor to appeal the determination
- Consider the Small Business Exemption within the supply chain
Importantly, the manner in which IR35/employment status is assessed WILL NOT CHANGE!
How does a client determine my IR35 status?
Your end client must consider a number of areas when assessing your IR35 status however it is important that they look at all of the areas to allow for a correct assessment and for reasonable care to be demonstrated.
The key assessment areas are as follow:
- Personal Service/Substitution
- Supervision, Direction, or Control
- Mutuality of Obligation
- Financial Risk
There are a number of assessment options for the client to use with the most popular being HMRC’s much-maligned CEST tool, as well as other automated and online independent assessments.
Who will be affected by the new off-payroll working rules?
If you are a contractor providing your services via a limited company then you will be affected by these changes therefore you should quickly start to consider your payment options should you be deemed to be inside the scope.
Are there any exemptions to the new IR35 rules?
There is an exemption for small businesses meaning if you are providing your services to an organisation that qualifies as a small business the responsibility for determining your IR35 status remains with you.
An organisation will be classed as small if it satisfies 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 has an average of no more than 50 employees for the company’s financial year.
How can I prepare for the new IR35 rules?
If you haven’t already done so then we would suggest that consider your IR35 status by using HMRC CEST tool or an alternative online assessment process. Once the client provides you with your Status Determination Summary, you will be given the opportunity to appeal an inside determination therefore it will important that you can provide your own evidence.
We would also suggest that you also look at your payment options should your appeal not be successful and if you are considering an umbrella company then please make sure that you choose an FCSA accredited provider to ensure you are not putting yourself at risk.
What are my trading options under the new rules?
If you are deemed to be inside IR35 they will be provided with the following options:
- Agency PAYE
- Umbrella PAYE (e.g. Champion Contract Services)
- Limited Co (deemed payment)
If you are deemed to be outside of scope then you will be able to continue to provide your services via your Limited company.