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IR35 - the countdown begins

It may seem like déjà vu, but we are back on a 6 month countdown until the roll out of the off-payroll IR35 reforms to the private sector. Though 2020 has been a difficult year to effectively plan ahead, 2021 looms with more certainty of change, so it’s crucial that businesses start (or re-start) their preparations now, no matter what the next few months bring.

Remind me - what is IR35?

  • In very simple terms, IR35 was introduced to examine the relationship between a Limited Company contractor and the end user it engaged with to establish whether it was one of ‘disguised employment’ or a genuine business relationship.

  • In other words, should a LTD Company actually be reclassified and taxed as an employee, or is there enough evidence to suggest otherwise?

  • Since its introduction in 2000, it’s been the responsibility of the Director of the LTD Company to determine their own IR35 status.

  • If they considered themselves inside of IR35 for certain roles, the income from that assignment would be deemed as employed income and their accountant would treat this income differently than roles deemed outside of IR35.

  • However, this approach was difficult for HMRC to police, leading to further reforms of the legislation.

Remind me – what happened in 2017?

  • In 2017, HMRC introduced the first major IR35 reforms into the Public Sector.

  • Their aim? To shift the liability for determining IR35 up the contractual chain, with a view that those entities will abide by the legislation more rigorously

  • The end-client became responsible for determining the IR35 status of the contractor, not the director of the company as previous.

  • If they were found to be inside IR35 on an assignment, then the fee-payer (either the end-client or recruitment agency, should they have introduced the contractor) became responsible for deducting employment costs such as Employer’s NI and tax and national insurance from the LTD Company.

  • As a result, many contractors found inside of IR35 moved over to PAYE methods of payment, either in house through their agency or via an Umbrella company.

Remind me – what is happening in 2021?

  • April 2021 will see an extension of the above Public Sector reforms into the Private Sector.

  • As before, the end-client will become responsible for determining the status of any LTD Companies they engage with, via a ‘Status Determination Statement’, and the fee-payer responsible for taxing that contractor correctly.

  • In recruitment terms, this means that the decision lies with your end client, and from there it’s your responsibility to tax the worker correctly.

I’m a recruitment agency - what do I need to do?

  • In short – take action now!

  • Talk to your end–clients, and gage how they are planning to approach these reforms. Will they go ahead with completing Status Determination Statements for LTD Company workers that they engage, or are they looking to move away from engaging with any LTD Companies altogether?

  • Talk to your current Umbrella suppliers, or if you don’t currently work with any Umbrellas, reach out and ask for advice and assistance on alternative methods of payment for contractors from a compliant company.

These changes will have a huge impact on the market. At Clipper Contracting, we have a full spread of alternative payment solutions that we will be happy to talk you through. We’re also running online and in-person IR35 training sessions where possible, so get in touch with your agency BDM now or call us on 01305233170

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