IR35 and Contractors
The rules regarding IR35 and off payroll working are changing on 6 April 2021. Previously as a contractor, your Personal Service Company (“PSC”) was responsible for determining how you were taxed under IR35.
From 6 April 2021 the PSC will no longer be responsible for determining your IR35 status if you work with medium to large businesses. That responsibility will shift to your end user client. Medium to large businesses are those with an annual turnover greater than £10.2 million, a balance sheet in excess of £5.1 million and more than 50 employees. Small businesses that do not meet all the criteria will not be responsible for IR35 and the PSC will continue to self-assess.
What to expect?
From 6 April 2021 your end user client will be responsible for determining your IR35 status. Often referred to as inside or outside of IR35. If you are found to be inside IR35 then you will be taxed as a deemed employee and paid your invoice less any tax and national insurance which your end user client will deduct and pay direct to HMRC. If the end user client determines that you fall outside of IR35 you will be paid gross.
Status determination statement (“SDS”)
Your end user client must let you and others in the supply chain have an SDS. Your end user client must take reasonable care when carrying out status determinations. HMRC have an online tool, check employment status for tax (“CEST”) that can help with the determination. Businesses do not have to use CEST, it is not mandatory, and the best approach would be to use CEST and then have the determined status double checked by an employment specialist.
Challenging your status
End user clients should have a procedure to deal with any challenges. They have 45 days to respond to a challenge and there is no right of appeal. Ultimately you are free to contract with another client if you are not happy with the status you have been given.
Effect on pay
Your pay will be reduced by deductions if you are deemed to fall inside of IR35. Under the Agency Workers Regulations 2010, agency workers have the same basic terms and conditions of employment as permanent staff after a qualifying period. One of those terms and conditions concerns pay; your end user client will need to be mindful of how your pay compares to other permanent members of staff.
If you have any queries regarding this communication or need employment advice please do contact a member of the Employment Team on email@example.com or by telephone on 0118 951 6621.