OFF PAYROLL WORKING RULES (IR35) – Make sure you are ready for the changes
IR35 changes come into effect from April 6, many firms are still not ready for the changes, make sure you are not one of them. Below is more information on the changes and what you need to do.
Off payroll working rules (IR35)
What is Off Payroll Working Rules?
The off-payroll working rules can apply if a worker (sometimes known as a contractor) provides their services through their own limited company or another type of intermediary to the client.
An intermediary will usually be the worker’s own personal service company, but could also be any of the following:
- a partnership
- a personal service company
- an individual
The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance contributions as employees. These rules are sometimes known as ‘IR35’.
The client is the organisation who is or will be receiving the services of a contractor. They may also be known as the engager, hirer or end client. The client will be responsible for determining if the off-payroll working rules apply.
Who the rules apply to?
You may be affected by these rules if you are:
- a worker who provides their services through their intermediary
- a client who receives services from a worker through their intermediary
- an agency providing workers’ services through their intermediary
If the rules apply, tax and National Insurance contributions must be deducted from fees and paid to HMRC.
When the rules apply?
The rules apply if a worker provides their services to a client through an intermediary, but would be classed as an employee if they were contracted directly.
A contract for the purpose of the off-payroll working rules is a written, verbal or implied agreement between parties.
The off-payroll working rules apply on a contract-by-contract basis. A worker may have some contracts which fall within the off-payroll working rules and some which do not.
Before 6 April 2021
If you’re a worker and your client is in the public sector, it’s their responsibility to decide your employment status. You should be told of their decision.
If you’re 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.
HMRC Tool for checking employment status
You can use the Check Employment Status for Tax service to help you decide if the off-payroll working rules apply.
You can use HMRC’s employment status service to find out if you, or a worker on a specific arrangement, should be classed as employed or self-employed for tax purposes.
Use the link above to:
- see if HMRC will treat you as employed or self-employed for tax purposes if you have or expect to have a work contract
- find out the employment status of a worker or an individual you engage or represent
What falls outside of IR35?
When working out whether a contractor falls outside of IR35, there are a few factors you can take into consideration:
- What equipment is being used? If a contractor is using their own equipment you may expect them to fall outside of IR35. This is especially the case if a normal employee would be issued with company-standard equipment.
- Financial risk. Another sign to look out for is surrounding financial risk, has the contractor used their own money to provide something that’s needed for the job – such as equipment or materials? If they are paying for and taking on the costs for equipment and materials purchased as well as the upkeep, it weighs heavily in favour of self-employment. Because of this, contractors outside of IR35 are often required to have professional indemnity insurance.
- It’s commonplace for self-employed workers to be paid one-off sums for the service they provide, rather than a fixed wage or salary for ongoing work.
- Do your contractors work solely for your organisation or do they have multiple other clients? Typically, self-employed individuals can work for multiple clients at once.