You’ll have found it hard to miss that IR35 is heading to the private sector, but what will it mean for your company if you engage external contractors?
What is IR35?
Already in force across the public sector, IR35 is legislation drawn up by the government to combat tax avoidance.
External contractors who provide services to end clients through a limited company, often known as a Personal Services Company (PSC), benefit from tax and National Insurance Contribution (NIC) relief. The IR35 legislation is intended to assess a contractor’s working practices, and ensure they are working as a genuine contractor, independent from the end client. If not, HMRC would classify them as a ‘disguised employee’ – someone who receives similar benefits or works in a similar way to directly employed personnel, but does not pay tax and NIC.
From April 2021 the legislation will be rolled out into the Private Sector as well.
With this roll out, responsibility will sit with the end client and fee payer, often the recruitment agency, to assess whether the external contractor is in or out of the scope of IR35. Those contractors deemed to be in-scope of IR35 will require tax and NIC to be deducted. Those out of scope, will continue to operate as they currently do.
Why do I need to look at the legislation now?
Whilst the change may not come into force until April 2021 now, it’s crucial that businesses develop their approach to assess IR35 across their workforce as early as possible to avoid a last-minute blanket approach.
NRL is currently working with clients to review their contractor workforce and identify how recruitment processes can be adapted to incorporate IR35 measures. If you’d like to arrange an IR35 contractor workforce review then contact NRL at [email protected]