What’s happening and when?
On 6 April 2021 the IR35 rules in the private sector will change. In brief, the IR35 rules apply where an individual works through an intermediary, such as a personal services company, and provides their services to an end user client. If that intermediary did not exist, but the individual looked like an employee of the client for tax purposes, then that assignment is deemed to be ‘inside IR35’ and the individual’s pay should be subject to PAYE tax and national insurance. Employers’ national insurance will also be due.
Under the current IR35 rules in the private sector, the intermediary is responsible for assessing the individual’s status. However, in April 2017 the rules changed in the public sector – under these ‘off payroll rules’ the public authority which is the end user client must assess status for tax purposes. If the role is inside IR35 then the fee payer (which is the party next to the intermediary, usually an agency) must make the appropriate deductions before it pays the intermediary. The agency then reports those payments via it’s Real Time Information (RTI) report. If the role is ‘outside IR35’ the intermediary remains responsible for tax and national insurance.
Why is this happening?
The Government believes that there is significant non-compliance with the IR35 rules in the private sector and so in 2018 consulted on how to best improve compliance in that sector. At Budget 2018 the Government confirmed that it would extend the off payroll rules into the private sector from April 2020.
You will find the consultation document here.
It is vital that all contractors are aware of these changes and consider the implications of how these changes will affect them.
All end-user hiring organisations will define whether a role is inside or outside IR35 using the Check employment status for tax tool (CEST), and the recruitment agency will be notified as to whether the role will be inside or outside the IR35 regulations. As such the agency must ensure that they have the payroll capabilities to manage payments to contractors.
What does this mean for you?
CK Group currently provides services for contractors who work outside IR35 and a payroll service. We will keep you up to date with this process, but be aware that changes will be implemented in April 2021, and it is important that as a contractor you are ready for these.