IR35 changes to the private sector

What is IR35?

IR35 is off payroll working. IR35 rules are devised to evaluate whether a contractor is a genuine contractor, who is truly self-employed, rather than a ‘disguised’ employee, for the purposes of paying tax.

Using contractors save both businesses and individuals money. For employers, there is less tax and no sick or holiday pay required. If the contractor has a limited company, there may be less tax for the individual. This way of working can be a huge benefit for both parties of genuine contracting work; however, the Government want to ensure these types of contracts are not misused and are only applied to those in true self-employment.

When is this changing, and what is changing?

Previously these rules only applied in the public sector, however from April 2021 eligible large and medium sized organisations that are engaging contractors through intermediary companies will be responsible for assessing the employment status of those contractors.

To be eligible, an organisation must meet at least two of the below criteria:

1) have over 50 employees
2) have a net turnover in excess of £10.2m
3) have over £5.1m on their balance sheet

These rules have been postponed due to coronavirus and were originally set to come into force in 2020.

If we use contractors, what do we need to do?

Sometimes a relationship may have changed over time, a contractor who has worked with a business for an extended period of time, may now in fact have an employee status. This is a good opportunity to review the current workforce to ensure compliance with agreements and contracts and also consider how the business may hire in the future.

Employers should conduct a full review of all staff and contractors working within a business and consider the relationship by reviewing:

1) What are the worker’s responsibilities?
2) Who controls the individual (i.e. when, where and how do they work)?
3) How they are paid?
4) Are they directly in receipt of any benefit or expense?

An important consideration if IR35 should be applied to an individual is their independence from the business, i.e., can they work for others. Ultimately this comes down to the level of control that the business has over the employee.

HMRC has made it very clear that IR35 is not intended to target those who are genuinely self-employed. Businesses should take a cautious approach when applying the rules and take time to identify each person’s status on an individual basis, based on the everyday relationship with the individual rather than a blanket approach to all contractors.

The individual’s status should be reflected in a contract of employment or a contractor agreement which may need changing due to the status determined.

For further information, support with contracts or agreements, please get in touch with the team at Sue Willmott HR here.

Grace Williams - Remote HR Consultant based in Cornwall

 

AUTHOR: Grace Williams

– Remote HR Consultant for Sue Willmott HR & Careers Consultancy.

I am an Associate Member of the CIPD and hold an MA with Distinction in Human Resource Management (Level 7, CIPD).

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