April 2021 sees big changes for off-payroll working (IR35).
Find out what you need to do.
In April 2021, there will be reforms to the off-payroll working rules (IR35). They will affect you if you’re an independent contractor who provides services to your client through your own limited company.
To put it another way, if you’re a contractor who would be an employee if you were contracted directly by your client (rather than through your intermediary), the IR35 changes will affect you.
The changes mean you will pay broadly the same tax and National Insurance contributions as if you were an employee.
On this page, we’ll try to answer all your questions in relation to the IR35 tax law and your tax liabilities. If there is a question you don’t see answered here, please get in touch for advice.
IR35 is new anti-tax avoidance legislation. It applies to individuals who work as contractors through their own limited company to provide services to, typically, one customer. To all intents and purposes the people caught within IR35 act as though they were employees of the business that contracts with their limited company. The legislation aims to ensure that they pay tax and National Insurance at the same rate as an employee would.
To determine whether or not IR35 applies to you there are some basic questions to ask:
- Do I trade through a limited company? If the answer is “No” then IR35 doesn’t apply.
- If you do trade through a limited company you can check whether it applies to you by using the Check employment status for tax questionnaire on HMRC’s website.
You should of course give the questions thought and answer truthfully. You will get an instant decision at the end of the test. Keep a copy of it in your records. HMRC will honour the result in any subsequent tax investigation, unless of course you are shown to have answered the questions dishonestly.
IR35 was introduced to ensure that a popular tax avoidance loophole was closed, which resulted in those who are de facto employees paying the same tax as they would if they had been employed by the business that they are providing services to.
IR35 is only intended to catch those who should really be classified as employees. If you are a genuine business providing services to a number of different customers on your own terms then IR35 will not be an issue for you.
The precise wording of the contract between your company and the contracting company is key and your accountant will be able to advise you as to whether IR35 applies. However, it is not a case of getting around the legislation. This could be considered tax evasion and there could be penalties.
IR35 will be enacted in full in April 2021. It has already been introduced into the public sector and was due to apply to the private sector in April 2020. It was then postponed by a year by the Covid-19 pandemic.
In essence the changes to the legislation from April 2020 put the responsibility and liability on the “employing“ company to determine the IR35 status of its contractors. Previously the contractor had this responsibility and liability.
If you continue as a contractor under IR35 then your company will have to pay you a salary through an HMRC payroll equivalent to 95% of the money that your company is paid by the business that you are contracted to. This will ensure that the correct amount of income tax and National Insurance is paid. Your limited company can retain 5% of its income to cover administrative costs.
Almost certainly, yes. This is why the new rules are being introduced.
The IR35 tax rules will be fully implemented from 6 April 2021. They are already applicable in the public sector.
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