IR35 6th of April 2021
If you haven’t heard the news, IR35 6th of April 2021 is the date that everything we’ve been talking about for years is about to implode. As the date has been set for the acceptance of the IR35 rule and with it all of the legislation. So, let us go into the legislation, rules and what you need to know beforehand to prepare for this date as a contractor or umbrella company.
You can look through our blog and find out all you need to know on IR35 as we have several articles on the subject of IR35. However, we are going to talk about this auspicious date in much detail so stay tuned.
What is IR35 (A Brief Summary)
IR35 is a tax anti-avoidance rule designed to combat “disguised employment” in certain situations where an individual contractor is providing their personal services to an end-user via their own intermediary, such as a personal umbrella company or partnerships.
IR35 applies when the contractor would be an employee or officeholder for tax purposes if they were hired directly by the end-user. If IR35 applies, PAYE and NICs must be operated in respect of the fees paid to the limited company or umbrella company depending.
Under current IR35 rules, the contractor is responsible for assessing whether IR35 applies and, if so, operating PAYE and NICs on the fees the umbrella company receives (excluding VAT) less certain statutory deductions.
How is IR35 Changing on the 6th of April
The plans around the reforming of IR35 has arisen from the private sector by HMRC as they believe many people and companies are not complying with the legislation.
Under these reforms, responsibility for assessing whether IR35 applies will move from the contractor and umbrella company to the employer. If the employer determines that IR35 applies, the responsibility for operating PAYE and NICs will move from the contractor to the “fee payer” which is the umbrella company. The reforms will apply to any payments made on or after the IR35 6th of April 2021, unless all the contractor’s labour was provided before that date, which can still be looked at by HMRC.
The expectation of HMRC as a result of these reforms, IR35 compliance will potentially become easier to police. It is also predicted that employers will take a more compliant approach to IR35 assessments and will be more likely to conclude that contractors are in scope, resulting in increased tax and National insurance Contributions.
The employer is then required to assess whether the contractor is employed or self-employed for their tax purposes. They must take care in making that assessment and confirm the assessment together with reasons as to why that is the case in a Status Determination Statement.
The employer must provide the Status Determination Statement to the contractor before making the first payment. If there is an agency involved the Status Determination Statement must also be provided to the agency. In practice, we expect that the contractors accepting a new assignment are likely going to want to know in advance whether they will be assessed as within the scope of IR35.
The employer is then required to have a dispute resolution procedure to enable the contractor to challenge the assessment. A contractor is unlikely to challenge a Status Determination Statement which assesses them as falling outside the scope of IR35. HMRC may decide to review the assessment, so it is incredibly important that the Status Determination Statement has been set out in sufficient detail on the basis on which the decision is agreed, showing that responsible care has been taken.
If the initial assessment does conclude that the contractor is out of the scope of IR35, the contractor can continue to be paid gross. However, if the contractor is assessed as within IR35, the umbrella company or limited company is responsible for operating PAYE and deducting employee NICs on the fees it pays to the contractor, excluding VAT of course. The umbrella company or limited company must also pay employer NICs and any other tax they might need to pay.
Get in touch for your free illustration
There are a few ways that you can get in contact with us for a free illustration or even some more information about IR35 and what is going to happen on the 6th of April 2021.
You can fill out one of our many contact forms across our website and we will get back to you as soon as we possibly can. Other than that, you can send us an email directly which you can find throughout our website as well.