Having been delayed for a year due to the Covid pandemic, the new IR35 rules are due to come into force from 6 April 2021, affecting businesses, recruitment companies and temporary workers or contractors in the private sector.
Here is our guide to what is changing, what is staying the same, and the background to IR35.
What is IR35?
IR35 – also known as the off-payroll working rules - refers to anti-avoidance tax legislation designed to tax disguised employment at a rate similar to employment.
Here, ‘disguised employees’ refers to contractors who receive payments from a client via an intermediary, for example their own limited company or a recruitment company, as opposed to being a direct employee and paying taxes on a PAYE (pay as your earn) basis.
Initially introduced into the public sector, IR35 is now being rolled out to the private sector and affects all contractors who do not meet HMRC’s definition of 'self-employment'.
What are the current IR35 rules?
At the moment, if you are a worker and your client is in the public sector, it is their responsibility to decide your employment status. You should be told of their decision.
However, if you are a worker and your client is in the private sector, it’s your intermediary’s responsibility to decide your own employment status for each contract. The private sector includes third sector organisations, such as some charities.
What are the new IR35 rules?
From 6 April 2021, contractors may no longer have to determine their IR35 status and instead this task will be given to the end user of their services – as happens at the moment with the public sector. However, this will depend on the size of the company they are working for.
This new ruling applies to all public sector authorities (as it does currently) and medium and large-sized private sector clients.
However, if a worker provides services to a small client in the private sector, it is still the worker’s intermediary who is responsible for deciding the worker’s employment status and if the rules apply.
Who counts as a ‘small client’?
If you run a business employing contractors the new IR35 rule does not apply to you if the business meets at least two of the following three criteria:
- Turnover less than £10.2m
- Fewer than 50 employees
- Balance sheet of less than £5.1m
However, if your company is caught by these new IR35 rules then it is up to you to assess each contractor to decide if IR35 applies.
If it doesn’t, you need to tell the individual worker.
If it does, then the intermediary (such as a recruitment agency) must be informed and it is its responsibility to deduct tax and NICs.
To assess whether or not a worker is affected by IR35, you will need to use an online tool called CEST - Check Employment Status for Tax.
There is an appeal process if a worker feels they have wrongly been categorised.
What makes 24-7 Staffing different?
We took the decision in April 2016 to move all our contractors and temporary staff to PAYE and we are proud we did so.
This was an expensive option for our business, as it has meant turning away hundreds of limited company contractors who want to register with us, particular in our driving sector.
But we knew it was important to do the right thing for our contractors and for our clients. It means that IR35 does not affect our temps and contractors, as they have workers’ rights.
If you are looking for a new role and would like to work with a recruiter which pays all staff on a PAYE basis, please get in touch with the team. At 24-7 Staffing, we work with businesses across Chippenham, Salisbury, Bristol and the South West to fulfil their recruitment needs.