Get Ready for IR35
Changes to IR35 rules in the private sector are being introduced on 6 April 2021 – and you could be affected.
Our experience with the public sector showed that many employers struggled to understand IR35 and needed external support. Leaving action to the last minute incurred significant costs that could have been avoided.
Our resources are designed to keep you informed about the changes to IR35 rules and make sure your business is fully prepared for their introduction in April 2021 and beyond.
What is IR35?
IR35 rules first came into effect in April 2000. This anti-avoidance legislation was brought in by the UK government in a bid to make sure that individuals hired through an intermediary or PSC are paying the right amount of tax.
The aim is to prevent contractors working in an “off-payroll” capacity from gaining tax benefits when working in a similar or identical manner to “on-payroll” employees. Otherwise referred to as “disguised employees”, such individuals receive payment from their client through their own intermediary or PSC – rather than directly as employees of that business.
In theory, it meant someone paid direct through payroll as an employee of your business could leave work on Friday – and come back to do the same job on Monday as a consultant hired via a PSC and pay much less tax and/or national insurance (NI).
Until the introduction of the new IR35 rules, it was up to the contractor to ensure they paid the right amount of tax and NI. But your business – as the client – now has the legal responsibility for deciding if IR35 applies to the people who are working for you.
Will the new IR35 rules affect my business?
Yes. With the changes being introduced in April 2021, every private sector employer will need to apply IR35 rules.
The new rules will, in most cases, shift status determination from contractor to employer. However different rules apply to small businesses as defined by the Companies Act 2006. If you’re unsure if your business is considered ‘small’, does it have:
- An annual turnover no more than £10.2m
- A balance sheet total of £10.5m or lower
- 50 or fewer employees
Any business that meets two or more of these criteria is classified as ‘small’ and in that situation the status determination remains with the contractor.
It’s also important to be aware that third-sector organisations, such as charities, are included as private-sector employers. Our free guide to making sense of IR35 can help you find out more.
How do I prepare for IR35?
More people than ever before are now working for themselves. According to official statistics for Q3 2019, almost five million people – 15% of the total workforce – are self-employed. Since 2008, self-employment has increased by more than a third – growth driven by a rise in the number of freelancers/contractors, according to Association of Independent Professionals (IPSE) research.
Our own independent research suggests the new IR35 rules will lead to a significant number of requests from contractors for higher rates of pay or more permanent, full-time roles in order to ensure compliance with the rules. While there is plenty of information available for contractors on how they should prepare, we’re here to help employers get ready too.
Our experience in the public sector shows there are financial and workforce implications for you to consider. That’s why our Making Sense of IR35 guide is designed to demystify what the new changes mean. It also outlines what steps should be taken now to ensure business continuity.
How can Interim Partners help me prepare?
To help you make sense of the new IR35 rules for private-sector businesses, we’ve produced a series of free resources. Using our experience of supporting numerous public-sector employers, we’re expertly placed to advise you on the best course of action if you need to apply the rules.
We’re also here to help you understand how changes to the IR35 rules could affect your future recruitment strategy. From hiring contractors, to the appointment of interim executives, we can answer your questions and help guide you through the changes leading up to and after April 2021.
In addition to our free-to-download practical guide, we can provide the answers to some of the most frequently asked questions that employers have about IR35. For more information about the guidance and support we can offer your business, make use of our resources today.
Why download our IR35 guide?
Not preparing for the rollout of IR35 rules in the private sector could have serious implications – both for employers and their contract/freelance workers alike. Our aim as the leading interim management provider is to support our clients, which is why we’ve created this practical guide.
As many of our clients will be affected by the new IR35 rules, our guide is designed to help you make sense of the changes – and how you can minimise the impact.
Using our depth of IR35 experience from the public sector, the information contained within our guide will ensure business continuity, compliance and confidence. It can also inform your future recruitment policies where contractors or interims can best meet your skills requirements.
What will private-sector employers need to do?
If new IR35 rules apply to your private-sector business, the bottom line is that you must decide if a worker will be inside or outside the rules. It means determining their employment status for each contract you agree with an interim, contractor or provider.
Not only will you need to explain your decision to the individual or organisation you enter into a contract with, but you must keep records of these decisions (including the reasons and any fees paid). To deal with and resolve any disputes, you must also have relevant processes in place.
If you decide a contract worker falls within the IR35 rules, you must deduct and pay the correct tax and NI to HMRC. If the rules don’t apply to the worker or your business, tax and NI remains the responsibility of the PSC or intermediary.
What are the new IR35 rules for private-sector employers?
If applicable to your contractor, the new IR35 rules included in the Finance Bill 2019 mean that:
- For the purposes of Income Tax and Class 1 NI contributions, HMRC will consider you as an ‘employer’ when paying a worker through a PSC.
- Any payment to an individual’s intermediary for their services will be seen as a payment of employment income or earnings that would count towards Class 1 NI contributions.
- If you pay an individual’s intermediary, you’ll now be liable for any secondary Class 1 NI contributions and will be required to make the necessary tax and NI deductions from the amount you pay to that intermediary for services received.
- You’ll be obliged to send HMRC information about payments using Real Time Information if you’re deemed to be an employer for tax reasons.
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