IR35 changes come into effect in April 2021. As a result, organisations will be responsible for determining if an independent contractor is considered an employee for tax purposes and should prepare themselves for the responsibilities associated with their new obligation.
IR35 is the abbreviated name given to anti-tax avoidance legislation. Under the legislation, a contractor who provides their service via an intermediary, such as a limited company, may be liable to pay tax and national insurance as if they were an employee.
When determining if IR35 applies to a contract or engagement, HMRC requires companies to “work out the employment status of the person providing their services.” Where a contractor provides their service through an intermediary, such as a limited company, but would be considered an employee if there was no intermediary, IR35 may apply.
It is unlikely that a Statement of Work will be sufficient to determine the status of an individual and consideration should be given to several factors, including:
The HMRC have a quiz that companies may use to check the employment status of an individual for the purpose of tax.
Before April 2021, the onus on deciding if a contractor is subject to IR35 is on the contractor themselves, after April 2021 it shall be on the company engaging their services.
If the company decides a contractor is an employee for the purpose of tax, from April 2021 they will need to deduct tax and national insurance from the contractor’s payment.
The upcoming changes only affects organisations that are classified as being a medium or large business. The upcoming changes do not affect small business. A contractor engaged by a small business will continue to be responsible for determining their employment status themselves.
A business is classed as medium or large if they meet two of the following criteria:
Organisations can do several things to prepare for the upcoming changes, including:
If you would like and assistance on determining the status of contractors or a review of the consultancy agreement and would like to speak to an expert employment lawyer, please do not hesitate to call us on 02079036888 or email us via email@example.com
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