IR35 – An Update

We were hoping that by the time we published this newsletter we would have some positive news about the forthcoming changes to IR35. There had been fierce opposition to the extension of the rules to the private sector which is due to come into effect in April 2021.

In short the changes in April 2021 move the responsibility for determining if there is a deemed employment subject to the IR35 rules from the contractor themselves to the end-user that engages them. Should the determination result in the conclusion the engagement falls within IR35 then the contractor will be subjected to the same taxes as they would have been had they been a direct employee.

If the determination is made that the engagement is outside of the IR35 rules and HMRC later determines and incorrect conclusion was reached then the end-user is responsible for any unpaid liability.

HMRC have an online tool to assist contractors and end-users in making the determination, known as CEST (Check employment status for tax), but this is a flawed tool and has been widely criticized for its failings, one of the key objections raised against the changes in April 2021 was that more certainty and clarity was required before the changes were imposed.

Small businesses end-users have been left out of the extension of the rules, so the rules apply to private sector end-user companies that meet 2 or more of the following conditions:

  • an annual turnover of more than £10.2 million
  • a balance sheet total of more than £5.1 million
  • more than 50 employees.

The rules have applied to public sector body end-users since April 2017. The rules also apply where there are others in the supply chain between the contractor and the end-user, with potential liability for failures falling on the entity in the chain who pays the contractor.

If you require any advice or assistance with IR35 or status matters please feel free to get in touch.