18 Dec IR35 changes
Changes to the IR35 regulations within the private sector have been spoken about for many months and they almost got to the finishing post in March 2020, until the pandemic stopped its implementation in its tracks!
Well its back, and looking certain to come in to force from April 6th 2021
Preparation is key , as is clarity……so lets look at the key points
IR35 is the UKs tax avoidance regulations aimed at differentiating between legitimate “employed” workers and workers operating through a third party intermediary, in most cases as a Limited Company, with the sole purpose of tax avoidance.
In many cases such workers could and should actually be classed as “employed” workers
From April 6th it becomes the responsibility of the end client (opposed to the worker) to determine whether the worker sits inside or outside of the IR35 rules).
Before we outline HOW a company can determine its IR35 status, the rules only apply to companies within the private sector who meet 2 of the 3 criteria below:
- Annual Company turnover of more than £10.2million
- Annual Company balance sheet of more than £5.2 million
- More than 50 employees
If your company does not meet more then 2 of the 3 criteria above then IR35 rules DO NOT APPLY
The ruling also does not apply to overseas companies or those without permanent establishment in the UK
If the end user meets at least 2 of the 3 criteria a tool called CEST can be used to determine whether contractors fall inside or outside of the new rules: Check Employment Status for Tax (CEST): 2019 Enhancement – GOV.UK (www.gov.uk)
The outcome of this test must be documented and shared with workers affected by the IR35 changes.
If the outcome is that they fall outside the IR35 rules then no further action is needed UNLESS there are changes to the determining criteria
If the workers are deemed to fall inside the IR35 rules from 6th April 2021 then they must be advised of their options as they will need to be taxed at source for income tax contributions and national insurance.
Red Chilli Recruitment would be delighted to provide further advice and even offer solutions to end clients and workers falling inside the IR35 that need assistance