IR35 Deferred to Changes April 2021
What is IR35 all about?
IR35 is tax legislation that was introduced in April 2000 to combat tax avoidance. Its purpose is to make sure that contractors using an intermediary to provide their services are not, in fact, disguising employment to avoid paying the correct tax.
It ensures that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same income tax and National Insurance contributions (NICs) as employees.
Prior to 2017 contractors operating through a Private Service Company were responsible for determining if the assignment was inside the IR35 rules and pay the according employment tax.
In 2017 that changed for the public sector which now meant that government and local authorities would be responsible for assessing employment status and pay taxes due instead of contractors.
What are the IR35 changes in April 2021?
Starting April 6th 2021 private sector companies will be responsible to determine the employment status of a contractor’s assignment and deduct any employment taxes due and remit taxes owed to HMRC.
This means as a contractor, it will now be your clients who decide if a contract falls inside or outside IR35 rules and if PAYE tax and NIC needs to be deducted.
The private sector also includes third-sector organisations, so if you’re working for a charity this may affect you and your client.
What affects your IR35 status
Although your client is responsible to determine your status, HMRC can look beyond your contract and more into your actual working practices.
There are 3 Key IR35 Tests used by HMRC to establish if your assignment is within IR35 or not. So, it’s important that you work with your client to make sure your contract is aligned with your daily practice.
In addition, drafting an IR35 friendly contract and making sure you have all the correct clauses is a complicated process so you should always take advice first. A recent case that went through the courts has shown that the wording in your contract is very important.