Changes to IR35 in the private sector will go ahead on 6th April 2021, despite hopes for a further delay.
With just 1 week left until the new legislation is underway, those end clients engaging contractors who have not yet prepared for the changes, must act now.
IR35 was created to recover tax revenues from contractors seen to be working as ‘disguised employees’ and paying less tax than they should as a result.
Up until now, contractors in the private sector have been responsible for determining their own IR35 status. Contractors have also carried the liability for any unpaid tax and National Insurance contributions, if IR35 is deemed to apply.
From April 6th, contractors engaging with medium sized and large businesses will no longer have this responsibility.
Medium sized and large businesses employing private sector contractors will instead be responsible for determining the contractor’s employment status for tax.
Small businesses, who meet at least two of the following criteria, will be exempt from the changes:
- Annual turnover of no more than £10.2 million.
- Balance sheet total of no more than £5.1 million.
- No more than 50 employees.
As a contractor, you may find you are moved onto your client’s payroll, resulting in a lower take home pay.
For end clients, these changes bring an added burden of understanding IR35 and determining a contractor’s IR35 status, by way of a Status Determination Statement (SDS).
What do I need to do before April 6th 2021?
End-client businesses that engage contractors, whether directly or indirectly via agencies, must first determine whether they are medium or large sized businesses, for the purposes of the IR35 legislation.
If they are, they must decide as to whether contractor engagements fall within IR35 or not.
While you do not have to issue a formal Status Determination Statement (SDS) before 6th April 2021, if you did choose to do so, it will be valid from 6th April 2021. Either way, it is essential that you assess your contractor workforce and gather the facts needed to make an IR35 decision by looking closely at contracts and working practices.
To issue an SDS, you need to have a good understanding of the fundamentals of IR35, which unfortunately are not straight forward.
To learn more on how to make an IR35 status decision, read Factors That Determine IR35 Status.
For contractors who are unhappy with the outcome of their SDS, it’s important that you speak with your end clients sooner rather later.
Every end client is obliged to implement its own disagreement process to allow you to raise any objections to the Status Determination Statement (SDS).
To find out more about the client-led disagreement process, read What is my IR35 Status?
If the client you’re working with has yet to make an IR35 status decision, you may have an opportunity to influence the outcome.
You can do this by seeking an independent contract review, which will not only assess the current position, but will offer your client evidence that they can use to demonstrate that they have taken reasonable care when making their decision.
Caunce O’Hara offer a range of business insurance solutions to help contractors stay protected including Tax Enquiry & Legal Expenses Insurance, which provides cover for costs incurred by a HMRC investigation. Tel 0333 321 1403.
Markel Tax offer specialist IR35 tax services to help end client decision-makers ensure they are compliant with the legislation. Agencies who may be concerned about their fee payer liability can also consider insurance. To find out more, please contact Markel Tax on 0345 223 2727.