What are the IR35 tax changes and how do they apply to you?
The rules around IR35 and off-payroll working are changing, and from 6 April 2021, the new tax changes will come into force for the private sector. In this post, we discuss what’s changing, for who, and what the options are if you think you could be affected.
What are the IR35 tax changes?
From 6 April 2021, all private sector companies employing off-payroll staff – usually referred to as contractors – may have to take them on as an employee. If the employer dictates their terms, they can no longer be treated as contractors – they must, by law, be treated as employees.
Private sector companies receiving the services of a contractor will be responsible for deciding on the workers’ employment status.
The new rules make sure that all workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance contributions as employees. These rules are sometimes known as ‘IR35’. The changes are all about making sure you have consistency in how you treat employees.
Who is affected by the IR35 tax changes?
The IR35 tax changes – also known as changes to off-payroll working rules – may affect any company receiving services from a worker who isn’t on their payroll. In most cases, these are companies that work with contractors. It could also be any worker who provides their service to a company through their own limited company or another type of intermediary such as:
- a partnership
- a personal service company
- an individual
The company receiving the service is responsible for determining if the changes apply to them, rather than the worker providing the service.
You can use the gov.uk employment status for tax tool to help you determine any workers’ employment status.
What are your options?
- Do nothing
HMRC published a statement about supporting companies through this change and explained a ‘light touch’ approach to penalties will be taken in the first 12 months, unless there is evidence of deliberate non-compliance.
- Take the workers on as staff
Onboard these employees the way you would any new starter and include them in everything you do for your existing staff. This means a contract of employment agreeing pay, auto-enrolment pension, sick leave entitlement and the ability to accrue holiday leave and pay.
- Get business support from payroll and pension experts
How we can help
The change is coming, and we can help.
As payroll and pensions experts, we can advise you on your situation and the options available to you. Through our services, we can help process the increase in employees you are likely to have on your payroll and look after all of their needs. This means taking on the HMRC responsibilities – leaving you to focus on growing your business.
Through our SMART Employment model, we can also provide your new employees with the same range of benefits as other employees – making it clear your company is treating the new workers the same.
If your business is affected, contact us for a chat about your options or arrange a free, no-obligation consultation.