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What is IR35?
IR35 was introduced in 2000 to address concerns relating to individuals who supply their services via an intermediary (such as a Ltd Company) instead of as an employee, and therefore avoid paying employee income tax and national insurance contributions.
Where an assignment is deemed ‘inside’ IR35, PAYE deductions must be made from the contractor's pay.
Any assignment ‘outside' IR35 is classed as a genuine B2B service and is therefore not subject to the same tax treatment as employees.
Watch our video about IR35 for a deeper explanation.
So, what is changing?
From April 2021, the government will be extending the IR35 reforms to the private sector. This follows the Public Sector reforms in 2017. The reforms were originally planned for April 2020, but were delayed due to coronavirus.
The key change is that the responsibility of defining the IR35 status of the assignment will switch from the individual’s Ltd company to the client, as the recipient of the services.
The requirement of the legislation states that all companies must take ‘reasonable care’ when assessing if roles are inside or outside of IR35. Taking a ‘blanket approach’ to assess all roles won’t deliver this.
The potential financial penalties can be significant if incorrect steps are implemented, but there is time and support available to help. We have urged our clients to take a calm approach, but also suggested they think about these changes and to act now.
Did you know…
71% of public sector projects have been delayed or cancelled in the aftermath of the IR35 reform.
Did you know…
HMRC estimates that up to a third of workers operating via a PSC are incorrectly classifying themselves, leading to projected losses to the Treasury of approximately £1.2bn per annum.
Did you know…
IR35 is so named because of consecutively numbered Budget-related press releases issued by the Inland Revenue, i.e., the 35th Inland Revenue news release of the 1999 Budget.
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