IR35 Rules: Ensuring Your Business is Complying with the New Changes

July 19, 2021

On 6 April 2021, significant changes were made to the off-payroll working rules (IR35 rules).

In light of these changes, our Employment & HR experts outline everything you need to know about the IR35 rules and how to ensure that your business is fully equipped to comply with them.  

What were the changes?

The IR35 rules are designed to ensure that an individual who works like an employee, but through their own limited company (usually a personal service company ‘PSC’) or other intermediary, pays broadly the same Income Tax and National Insurance contributions (NICs) as other employees.

When the IR35 rules apply, any business which engages an individual contractor through an intermediary is responsible for determining the employment status of the contractor engaged for tax purposes.

Whilst the IR35 rules previously only applied to public sector clients, on 6 April 2021, the off-payroll rules were extended to apply to medium and large private sector clients with a UK connection.

What is a medium and large client?

For the purposes of the IR35 rules, a client is considered to be medium or large if they are not defined as small. A corporate entity is considered small if it satisfies two or more of the following requirements:

a)       Its annual turnover is not more than £10.2 million

b)      Its balance sheet total is not more than £5.1 million

c)       It has not more than 50 employees

What do you need to do if the IR35 rules apply?

If the IR35 rules apply, you must determine the employment status of every worker you engage who operates through an intermediary. If the circumstances of the engagement indicate that the contractor should be classified as an employee, rather than a self-employed contractor, you will be responsible for deducting Tax and NICS.

In addition to determining the contractor’s employment status, you must create and issue a status determination statement outlining the reasons given for the status determination.

How we can help

We can provide the following support to help your business navigate the changes to the IR35 rules:

• Application of the IR35 rules: advice on the likelihood of the IR35 rules applying to new and existing contractor engagements

• IR35 status determination: advice on the employment status of individual contractors

• Internal policies: reviewing existing internal processes for the application of the IR35 rules and/or providing new template policies and documents

• Training: staff training on the IR35 changes including advice on status determinations