Everything you need to know about off-payroll working legislation (IR35)

Following delays that resulted from the COVID-19 pandemic, the changes to off-payroll legislation (IR35) are now once again right around the corner.

Is your firm ready to deal with IR35? Don’t worry if not, we’ve compiled all the information you need to be aware of before April 2021.

IR35, what’s happening?

IR35, as outlined by HMRC, aims to make sure contractors who are relied on in the same way as a full-time employee now pay roughly the same tax and National Insurance contributions (NIC).

This change comes to rectify the current taxation issues, as it’s estimated that less than 10% of Personal Service Companies (PSC) comply with their current obligations.

It’s predicted that if IR35 does not come into play, £1.3 Billion in annual tax could be lost by 2023/24.

So, from April 2021, employers who rely on PSCs will have to determine the status of their contractors and make the required tax and NIC deductions.

Which businesses will IR35 impact?

IR35 has been in place within the public sector for a number of years now, and this new change will strictly apply to medium and large businesses who meet two or more of the following criteria:

  • Annual turnover greater than £10.2 Million
  • Balance sheet greater than £5.1 Million
  • 50 employees or more

What’s next for businesses?

Those impacted by IR35 will need to evaluate every contractor they’re using with an aim to update their status and notify the PSC within 31 days.

The workers who are now classified as employees will need to be processed through the business’ payroll using the correct tax and NICs.

However, it’s key to remember that when processing these workers, employers shouldn’t include any student loan deductions or AE schemes.

Following April 2021, when IR35 is in full effect, HMRC will be utilising inspectors who will examine the nature of working relationships, presenting their findings to a judge who will provide the final verdict.

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