IR35 is a set of complex rules that affect an individual’s Tax and National Insurance Contributions (NICs) if he or she is contracted to work through an intermediary. Its’ stated aim is to prevent workers using limited companies, through which they effectively work as employees, without paying the relevant Tax. In the eyes of HMRC those who do supply services through an intermediary should be classed under IR35 as ‘disguised employees’ and taxed in the same way as general employees – by making the appropriate PAYE and NIC payments. IR35 does not cover individuals that are genuinely self-employed.
When assessing whether IR35 rules should apply, HMRC assess both Contracts and working practices. They also consider tests such as control, mutuality of obligation and personal service, as well as the ability to provide a substitute to provide services. An employee would provide the services personally.
The IR35 changes are due to come into effect in April 2021, having been delayed since April 2020 due to Covid-19. Under the new rules, where workers are engaged through their own companies, responsibility to apply IR35 and to pay any associated Tax and NICs will fall to the private company or other third party paying the worker’s company.
To be eligible for IR35 obligations, an organisation must meet at least two of the below criteria:
- have over 50 employees
- have a net turnover in excess of £10.2m
- have over £5.1m on their balance sheet.
There are currently no details available regarding when the new rules will apply to smaller companies. However whether or not the new rules apply to your organisation it would still be good practice to audit all contractors and ensure that you have Contracts for Services in place, detailing exactly what services are provided and who is responsible for Tax etc.
If you do not have Contracts of Services in place for your Contractors or you would likes us to review these please email firstname.lastname@example.org or call 020 8346 8686.Tags: Contractors, Employment law, IR35
This post was written by SKHR