It’s almost here! After COVID led to the IR35 reforms being put on the back burner this time last year, the new date is almost upon us. IR35 tax changes are set to come into effect in April meaning that companies now have just weeks to ensure they have everything in place. Here’s a reminder of what you need to know.
From 6th April 2021 both clients and contractors need to take responsibility for ensuring IR35 compliance. The rules previously applied to the public sector but will now extend to the private sector too. So, it’s important that you and your contractors fully understand the legislation.
Defining ‘inside or outside’ of IR35
For companies and individuals hiring contractors, it’s vital to be aware of how you work with and treat your contractors to determine whether they sit inside or outside of IR35. If you’re struggling to define whether a contractor you work with is inside our outside of the reforms, contact us at email@example.com where one of our consultants will be happy to help. You can also use the government’s CEST tool for further guidance, here.
IR35 status considerations
Should an investigation of a contractor be required by HMRC, they will consider the following factors, so companies are encouraged to assess their contractors based on the same.
1. Substitution – can a substitute worker complete work carried out by the contractor? If not, the implication may be that the contractor is in fact a disguised employee.
2. Control – Do you, as the hirer, have control over how, when and where the work is carried out? If so, the contractor could be deemed an employee.
3. Mutuality of obligation (MOO) – This relates to an employer’s obligation to provide work and an employee’s obligation to take it on. It will be key in any IR35 tax investigation.
4. Risk – Where does financial risk lie? If it sits with the contractor rather than the employer, then they’re more likely to be deemed as sitting outside of IR35.
The responsibility used to lie with the contractor’s intermediary, but from April, the responsibility is now with the end hirer. Fines can be issued and unpaid tax collected from companies who aren't compliant. However, small companies (those defined by HMRC as having less than 50 employees, a turnover of less than £10.2m and a net profit of less than £5.1m) are exempt from the updated legislation.
The government has seen it necessary to implement the changes to IR35 legislation to omit tax avoidance by both employers and employees, and whilst we know that the majority of companies and contractors will be doing all they can to ensure they’re ready, we also know that the rules can be confusing. DATS is actively working with our clients and contractors to ensure they’re IR35 ready. We’re partnering with tax and accounting professionals to provide answers to any queries you, or your organisation may have, so don’t hesitate to get in touch should you need assistance.