New IR35 Rules – from 6th April 2021

As you may be aware, there are big changes coming into force from 6th April 2021 regarding IR35 (off-payroll working).

We have explained the changes in this email, to help you understand whether you may be affected.

Background

In the past, many people set up their own personal service companies to trade through, instead of being employed by a third party, in order to minimise their tax and national insurance contributions.

The IR35 rules were put in place by HMRC to prevent individuals from working through personal service companies in circumstances where the correct treatment is for the individual to be employed directly by the third party.

For the past twenty years, the onus has been on the owner of the personal service company to assess whether or not they should be classed as employed and therefore liable to paye and national insurance deductions.

From 6th April 2021, if an individual is carrying out work through a personal service company, for a medium or large engager, the onus will be on the engager to assess whether they should be deducting paye and national insurance from the individual they are paying.

Considerations if you are Paying Personal Service Companies

If you meet two of the following three criteria, you will be classed as a medium to large size engager:

  1. Your turnover exceeds £10.1 million.
  2. You balance sheet total exceeds £5.1 million
  3. You have over 50 employees

If you fall under this category, from 6th April 2021 it will be your responsibility to assess whether any of the contractors you are paying should be taxed as employees, rather than self-employed/limited company contractors. 

Considerations if you Trade through your own Limited Company

These rules are particularly relevant if you complete most of your work for one or two large customers. There are several indicators to consider whether you should be classed as employed or self-employed (to include trading through a limited company).

 Unless you are contracting for a large engager, as described above, it remains your responsibility to assess whether you would be classed as an employee of your client, if they were to engage you directly (i.e. if your personal service company did not exist).

If you are contracting for a large engager, they may send you a status determination statement, to inform you that they will be deducting paye and national insurance from you from April 2021. These large engagers do not always assess this correctly, as it is a grey area, so it is important to consider whether or not you agree with their assessment.

We Can Help

If you want to discuss anything regarding these rules, please get in touch.
We can help with the following:

  • Assessing and, if appropriate, appealing a status determination statement you have received from your engager/customer.
  • Assessing whether you should be trading under the IR35 rules, and therefore be liable to paye and national insurance deductions.
  • Assessing whether you are classed as a large engager, and help you understand your duties in this area. 

It is important that you obtain advice where necessary, and we are always happy to help. 

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