What is IR-35 & how will it impact you?

What is IR-35?

IR-35 describes two set of tax legislations which are used to make sure contractors and organisations are paying the correct amount of tax.  If you hire a contractor who supplies their services through an intermediary, such as a limited company who, without the intermediary would be classed as an employee you could find IR35 would affect you.

When will the changes come into effect?

The new IR-35 legislation is already in place in the public sector but will come into effect in the private sector in April 2021, it may also be referred to as the new ‘Off-payroll tax’.  This was meant to be rolled out in the private sector in April 2020, however it was delayed for a year due to COVID-19.

How could it impact me?

Currently individual contractors are responsible for deciding their employment status, making them responsible for their own tax.  However, when the changes come into place the end client will be responsible for deciding if a contractor is inside or outside of IR-35.  A contractor who is working inside IR-35 would be considered an employee for tax purposes, a contractor who is working outside IR-35 would be considered a true contractor and will be able to operate as normal.

How to decide if a contractor is inside or outside of IR-35

To help decide if a contractor falls in or outside IR-35 the UK Government has an online tool available on their website.  If you are receiving the same benefits as a regular employee such as; holiday pay, benefits and sick pay.  HMRC are using the current criteria to assess if IR-35 applies:

  • Substitution

If individuals can be substituted by another employee of the intermediary.  This would mean an individual is not providing a personal service.

  • Mutuality of obligation

If it’s a contract with an end date, it’s likely a IR-35 will apply, but if the work is project based and ends when a project is completed, it’s likely to be a true contractor and therefore would fall outside of IR-35.

  • Control

If an end employer states the workload, the way this workload is carried out and organises schedules etc it is likely this would fall into IR-35.

Other factors to consider

Contractors will often not be offered company benefits, will have a clear start and end date to their contract and will often work different contracts at the same time, completing different hours which they deem necessary each week.  Most contractors who are set up as a limited company will also have indemnity insurance and will work via a third party such as a recruitment consultancy.

As a specialist recruitment consultancy, we have a great understanding of the new IR-35 rules and can help organisations to hire subcontractors through CY Partners.

 


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