Changes to IR35

The government website states that:

The off-payroll working rules can apply if a worker provides their services through an intermediary.

An intermediary will usually be the worker's own personal service company. They could also be a partnership, a managed service company, or 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'.

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.

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.

From 6 April 2020 how the rules are applied will change.

All public sector authorities and medium and large-sized private sector clients will be responsible for deciding if the rules apply.

If a worker provides services to a small client in the private sector, the worker's intermediary will remain responsible for deciding the worker's employment status and if the rules apply.

The rules were introduced to ensure that individuals who work in the same way as employees pay broadly the same taxes as directly employed people. However, HMRC has found it difficult to enforce the rules.

From 6 April 2020 the responsibility for deciding if an individual falls under IR35 must be decided by the client engaging them. If the client concludes that they are an employee, the client must pay employers National Insurance of 13.5% on the charges. 

The rules will not apply to small organisations, this is an organisation that does not meet at least two of the following:

  1. Annual turnover of more than £10.2 million 
  2. Balance sheet total of more than £5.1 million 
  3. More than 50 (F/T equivalent) employees 

This is an important change and organisations that will be caught by the rules must prepare. 

To discuss this or any other employment related issue, contact us.