Find out how IR35 is determined and the latest changes coming in April 2021.
With the amended IR35 legislation due to come into effect in April 2021, following a delay caused by the Coronavirus pandemic, many organisations are still experiencing some confusion over how the latest IR35 changes will affect them. This paper aims to provide a quick guide to:
- What is IR35
- IR35 latest and changes coming in April 2021
- How IR35 status is determined
If you are familiar with the above, you may also be interested in how does IR35 affect me and what are the risks? this goes into more detail on what your organisation needs to do to prepare for and accommodate the risks associated with the legislation changes. To discuss any of these topics in more detail and how they impact your organisation specifically, please get in touch with the team at Davies Resourcing.
What is IR35?
IR35 is a piece of legislation from the HMRC that defines off-payroll working rules for hiring organisations and contractors, it was originally introduced in 2002. Its intention was to clamp down on contractors operating in what HMRC described as ‘disguised employment” through an intermediary such as a limited company with the aim of reducing tax contributions made by these individuals. The legislation defined specific criteria to be used to determine whether work should be deemed equivalent to an employed status, if it was deemed as such, the contractor was obliged to pay tax and NICs as if they were an employee. The hiring organisation would also be expected to bestow statutory benefits upon the individual as if they were an employee e.g. statutory sick pay etc.
IR35 latest: the changes coming in April 2021
From its introduction, the responsibility and associated tax liability for determining whether a piece of work falls inside or outside of IR35 has fallen upon the individual contractor. The changes in legislation will transfer both the obligation for determining employment status and the liability for any unpaid tax to the employer or hiring organisation.
Legislation was changed back in 2017 for public sector organisations and was going to change for medium to large private sector organisations in April 2020 however this was deferred to April 2021 following the outbreak of the pandemic.
In addition to transferring this responsibility, there are specific processes that hiring organisations are obliged to follow.
How IR35 status is determined
The following provides a guide to the ways in which HMRC assesses the employment status of an individual working on a specific assignment. The government has provided an automated online tool for completing this called CEST – short for ‘check my employment status’. Where a worker is deemed to be working as an employee they are deemed ‘inside’ IR35 and where working as a bonafide consultant providing a service, they are deemed to be ‘outside’
Importantly, both what is written in the contract and the actual behaviours and noncontractual working practices are assessed, a balanced assessment should be made across ALL of these areas:
Get expert help
Davies works with over 750 Insurance, Financial Services and Regulated businesses and sources and deploys 1,000s of contractors. If you need help sourcing specialist skills or ensuring you are compliant with IR35 legislation, please get in touch.
From carrying out an end-to-end assessment of your readiness through to helping implement practical solutions such as helping automate and standardise your determination processes through to implementing new contracts and payment mechanisms, we’re here to help!