What is IR35?
From April 2021, the Government is extending the off-payroll rules into the private sector. The new rules will apply to work done by contractors working as personal service companies (PSC). IR35 is the term used to describe the UK tax legislation for contractors.
Who the rules apply to?
The rules apply to all public sector, medium and large-sized private sector clients that meet 2 or more of the following conditions:
• an annual turnover of more than £10.2 million
• a balance sheet total of more than £5.1 million
• more than 50 employees.
If the company does not fall into the conditions, then they are exempt from IR35 rules. Employ Recruitment will require the client to complete an Exempt Declaration Form. All other companies must comply with the IR35 rules.
What are the rules of IR35?
The client is responsible for assessing the tax status (IR35 status) of a contractor work assignment and making a Status Determination. To do this the client must take reasonable care in making the decision. A Status Determination is the tax status of the work assignment and is either Inside IR35 or Outside IR35.
Inside IR35
For inside IR35 assignments, the contractor is deemed to be an employee (for tax purposes), meaning the fee-payer (Employ Recruitment) is liable for making tax and national insurance deductions. These deductions must be reported to HMRC to meet tax liabilities.
Outside IR35
For outside IR35 assignments, the contractor does not look like an employee of the client, is generally self-employed (for tax purposes) and will continue to be responsible for deducting their own tax and national insurance.
