The Henderson Scott team are busy supporting our existing clients and contractors as we get close to the upcoming legislation changes.
To help our wider network we have pulled together some FAQs which we hope you find useful.
1. Who does it effect?
IR35 only applies to limited companies so if you are currently paying PAYE tax and NI already (i.e. via an umbrella company) then you will not be affected by the changes. The changes in April also only affect medium and large businesses and as such small companies will not be affected meaning the worker will still be responsible for determining if the engagement falls inside or outside of IR35.
2. When does the legislation change?
The IR35 reforms in the Private Sector are scheduled to come into effect on 6th April 2021. They have previously been deferred however we recommend preparing for it to come into effect on this date.
3. What do I need to do?
If you’re a medium to large business that currently engages with any contractors, or plans to in the future, then it’s important to be aware of how IR35 could impact these contracts moving forward.
If you are contracting through a limited company we expect that your client will be speaking to you in the coming weeks to confirm if your assignment has been assessed with a status determined as employed for tax purposes (or “inside”/IR35) or the off-payroll working rules do not apply (“outside IR35”). Contractors whose assignments are determined to be “inside IR35” will pay PAYE income tax and National Insurance just like an employee. Net take home pay is likely to be lower than under a PSC model.
If you are a contractor operating through a personal services company, it is important that you take advice from your accountant about how this might impact you.
4. What helpful resources are available to me?
IR35 can be confusing if you’re not from a finance background. Even if you are, the factors that determine whether you are going to be taxed as a PSC contractor, or taxed as an employee, are often down to the judgement of the end client.
Whether you are a client who uses, or is considering using, contractors who operate through personal services companies (“PSCs”), or whether you are a contractor operating through your own PSC, it is vital that you understand how IR35 is going to impact you from April 2021.
To help you tackle the next steps for IR35, we’ve pulled together a list of useful resources from HMRC:
- IR35 employment check status calculator to assist in your IR35 employment check. This is known as a CEST (Check Employment Status Test).
- A variety of content on: IR35 Business Tax information, Employment Status Manual, Fee-payer responsibilities and Off-pay roll communication resources can be found here.
- A flow chart to help establish if a contractor is ‘inside IR35’ or ‘outside IR35’.
For further information you can talk to our expert Contracts and Compliance manager by emailing your enquiry to: firstname.lastname@example.org