IR35 changes – is your business affected?

IR35 Changes – Is Your Business Affected?

IR35 refers to the tax rules used by HMRC to combat alleged tax avoidance where businesses use contractors to provide services rather than employees. A properly structured contractor arrangement will provide significant tax savings for both the business and the contractor – it is these tax savings that HMRC find offensive.

The IR35 rules were applied to the public sector (hospitals, local government, the BBC!! etc) from April 2017 and these changes will be extended to the private sector from April 2021.

Despite protests and lobbying from a number of bodies including the Professional Contractors Association, HMRC and the Government are sticking to their guns on this and these changes are coming in on 6 April 2021.

Significant tax liabilities will arise and businesses need to get their house in order now to avoid being caught out from April.

It is important to note that your business is EXEMPT from the IR35 changes if 2 of the following applies:

• You have less than 50 employees.
• Your annual turnover is less than £10.2 million.
• Your balance sheet assets are less than £5.1 million.

But if you are not exempt, you need to be aware of and act on these changes:

End user clients have to make a decision on the status of their contractors. HMRC have provided the CEST tool (check employment status for tax) to help with this but this needs to be used with care. This ‘Status Determination’ check needs to be performed with reasonable care.

If the contractor falls under IR35, then the “fee-payer” and contractor must be informed by providing the Status Determination to them.

The “fee-payer” then needs to pay the employment taxes (employers national insurance – 13.8% and deduct PAYE – up to 45% and employee NIC – 12% / 2%) based on the amount received by the “fee-payer”.

• This means the “fee-payer” must treat the contractor just like an employee, putting them through their payroll.
• The money is treated as taxed at source – but contractors will now be paying significantly more tax than before.
• Contractors can appeal to the end-user, but end-users risk becoming liable for the tax if they get it wrong.
• Although contractors are treated as employees for tax purposes due to IR35, they are not really employees so do not automatically receive other employee benefits.

Our experienced tax consultants at Wilson Partners have created a number of solutions to help your understand and meet you obligations under these new rules.

To find out about how IR35 could affect your business, email [email protected] or call 01628 770770. Alternatively, check out more information here where you’ll be able to watch our IR35 webinar video.