Everything you need to know about IR35

From April 2021, IR35 legislation is set to shake up the business landscape, altering the way large private employers, recruiters and contractors manage off-payroll working.

IR35 was originally planned for April 2020, but due to the recent COVID-19 pandemic, the Treasury has postponed the changes until 2021.

What will IR35 change?

IR35 will require employers who use workers from personal service companies (PSC), or other similar arrangements to establish if those workers are employees or suppliers.

Workers who are determined to be employees will require their employers to deduct tax and National Insurance contributions from payments that are made to the PSC.

Why is IR35 being implemented?

Currently, the responsibility of deciding if a worker is an employee or supplier falls on the contractor and as a result, HMRC estimates that less than 10% actually comply.

HMRC believes that this lack of compliance could result in as much as £1.3 billion of tax being lost by 2023/2024.

Who will be impacted by IR35?

IR35 will apply to medium and large businesses who meet two or more of the criteria below:

  • More than 50 employees
  • Balance sheet total of more than £5.1 million
  • Annual turnover of more than £10.2 million

What needs to be done?

Those impacted by IR35 will have to ensure that they evaluate every contract and update each worker on their status within 31 days of the deadline.

Once the status of each contract is confirmed, businesses then have to also notify the PSC within 31 days of the deadline.

Those who are now classed as employees will need to be run through your payroll to allow National Insurance contributions and tax. It’s worth bearing in mind that off-payroll workers shouldn’t have any student load deductions applied or be included in Automatic Enrolment schemes.

How will HMRC assess IR35?

A ‘test of employment’ in accordance with UK employment law will be conducted, rather than looking at written contracts, the test will inspect the nature of the working relationship.

HMRC will then present these findings to a judge who will provide the final decision.

However, HMRC stated that businesses won’t receive penalties for errors in the first year unless there has been deliberate non-compliance.

How can 12Pay support?

If you’re looking for an easy to use payroll solution that can help you ensure compliance, look no further than 12Pay.

We have a range of solutions to meet the needs of any business, providing the necessary tools to support legislative changes such as IR35.

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