Everything You Need to Know about IR35

Everything you need to know about IR35 - calculator and tax documents

February 2021

Everything You Need to Know About IR35

IR35 – known also as the Intermediaries Legislation. There’s a lot to talk about regarding IR35. So this blog examines the main principles involved with IR35 with more to follow in the weeks leading up to the deadline. 

Everything you need to know about IR35 - calculator and tax documents

 HMRC defines IR35 as off-payroll working.  IR35 is shorthand for a particular piece of UK tax legislation. It’s designed to identify contractors and businesses that are avoiding paying the appropriate tax. They could be doing that by:

  • Working as ‘disguised’ employees
  •  Or engaging workers on a self-employed basis to ‘disguise’ their true employment status.

 April 2000 saw the introduction of IR35. It takes its name from the original press release published by Inland Revenue (now HMRC) announcing its creation.

So, what is IR35? And do you have any circumstances/relationships that will fall under the new rules? Let’s have further dig into everything you need to know about IR35

Put another way, IR35 is a set of rules. These rules help HMRC determine the tax and NICs that people contracted to work for a client via an intermediary should make. The new rules are intended to ensure everybody who should have ‘employee’ classification for tax purposes, pays PAYE tax and NICs as an employee would.

This is important from an HR perspective, if you either now, or in the future, engage workers through intermediaries – usually a personal service company.

An intermediary will usually be the worker’s own personal service company. They could also be a partnership, a managed service company, or an individual.

The rules make sure that workers, who would have been an employee if they were providing their services straight to the client, pay roughly the same tax and NICs as employees.

It’s now essential to review whether you have any arrangements that the new rules would capture. And would therefore, expect you to calculate the relevant tax and NIC contributions.

Questions that you, as an employer, should ask yourself so that you can 

  1. What are the IR35 off-payroll reforms
  2. How will they affect your organization?
  3. Have you considered any practical steps you may need to take to ensure that you:
  • Remain compliant with the law and …
  • … manage any extra liabilities.

Now  – as pointed out at the top of this article, April 2000 saw the introduction of the Intermediaries Legislation. And there are a set of conditions that determine this status that warrant further consideration:

The ‘off-payroll’ addition to the existing IR35 rules saw roll-out across the public sector in April 2017.

The rules will now hit private sector businesses from April 2021. 

The Covid-19 crises caused deferment of the planned rollout from April 2020. These new rules mean that clients (not contractors themselves) will be responsible for determining the employment status of contractor.

Vital that you understand the rules 

The requirements vary a little depending on whether the intermediary is a company, partnership or individual. But the new rules create the need to assess any contractor/worker arrangements you may have or would consider in the future. Hence, it’s vital you take the necessary steps to understand the new rules and be compliant with them.

A lack of understanding of the rules and regulations can lead to the imposition of financial penalties on your company.

As a first step you may wish to do a quick assessment of your IR35 compliance  here: https://www.gov.uk/guidance/understanding-off-payroll-working-ir35

Or, if you want someone to help you through it or even do it for you then Go-Legal HR will help you.  All our contact information is on our website here. 

And you can connect with Paul Himple, MD of GO-Legal HR on LinkedIn here.