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IR35: How prepared are you for the tax changes (April 2021)?

If you are a medium to large size company that engages individual contractors who work through a personal service company (PSC), you are likely to be affected by new tax rules that will come into force on 6 April 2021.

It is currently (prior to 6 April 2021) the responsibility of an individual contractor (and not its clients) to self-assess and declare their employment status under IR35, for tax and NICs purposes, to HMRC.

Due to reported widespread non-compliance, HMRC is shifting (from 6 April 2021) the responsibility from the contractor to the “end-user” of contractors’ services (i.e. the client) to prove self-employed status. The change is being introduced under the ‘off-payroll working rules’, which sit over and above the IR35 tax regime.

A client will be a medium or large-sized company if they meet at least two of the following conditions for two consecutive financial years:

  • turnover of more than £10.2 million
  • a balance sheet total (assets on the company’s balance sheet before deducting any liabilities) of more than £5.1 million
  • an average of more than 50 employees

However, if a client is part of a group of companies (or connected to other entities) or part of a joint venture special rules will apply for determining its size.

Where the client is a small company (which does not meet the above criteria for being medium or large), the individual contractor will continue to be responsible for declaring their employment status under IR35 to HMRC.

If contractors are unclear as to the size of their client (and, therefore, where responsibility lies for declaring employment status to HMRC), the new tax rules allow them to make a formal request to the client for confirmation of its size in any given tax year.

The new rules will apply in respect of those engagements where payments are made on or after 6 April 2021 but only where the contractor’s services were also provided on or after 6 April 2021.

If the contractor’s services were all provided prior to 6 April 2021 (but payment was made on or after 6 April 2021), the payment would not be subject to the new rules.

If a payment is made for services which were provided both before and after 6 April 2021, HMRC state that a ‘just and reasonable’ apportionment should be made and the new rules will apply to the part of the payment which can be reasonably seen to be for the contractor’s services provided on or after 6 April 2021.

For more printed information about the new rules and how to comply, please click the button below.

View PDF

  • Register here for the next FREE Gov.UK webinar: Talking Points – Off-payroll working rules from April 2021: Contractors.
  • Register here for Make UK’s two-hour webinar: IR35 and engaging contractors: prepare for change in 2021 (22 February 2021, 10am – 12pm)

Source: Make UK / Gov.UK