In 2021 the reform to IR35 Off-Payroll rules is to be rolled out to the private sector. As before the reform will only affect companies that do not meet the following attributes:
- an annual turnover below £10m
- fewer than 50 employees or
- a balance sheet showing less than £5.1m in assets
Any company unable to meet these criteria will now be responsible for determining the IR35 status of its workers. This will also include the status of contractors already under contract before the introduction of the reform.
Whenever a contractor is deemed to be within IR35, through an assessment process or assistance from the official government CEST tool, the fee-payer will be expected to deduct tax and national insurance at source via PAYE. Any company engaging with contractors directly will be considered the fee-payer. Care should be given that the correct status is determined for each contractor on a case by case basis, as the fee-payer will be liable for the tax and National Insurance owed should HMRC disagree with a given status.
Should contractors want to retain their position, or take on a position that is deemed to be inside IR35, it could be a possibility that they will seek an increase in payment rates. This increase will allow them to continue taking home the same level of income as they did before the reform. However, you must also be prepared for some existing contractors to terminate their contracts to seek an outside IR35 contract elsewhere.
Alternatively, there is the option to obtain contractors through umbrella companies. By working in this way the responsibility of tax payments falls onto the shoulders of the umbrella company, as the contractor is employed by the umbrella for the duration of the contract.
To understand how others are responding to the IR35 changes join the first of our Polls and we’ll make sure you are the first to see the final results in January.