What is IR35 and how is it changing?

Apr 14, 2021 | Articles, Taxation, The Material | 0 comments

What is IR35 and how is it changing?

IR35 is a tax law designed to prevent tax avoidance by contractors working for their clients via an intermediary such as a limited company or personal service company.  The idea behind the new rules is that it will prevent contractors from disguising their real status as an employee and therefore not paying necessary income tax and National Insurance contributions (NICs). 

Medium to Large-Sized Companies

From 6 April 2021, medium and large-sized businesses in the private sector will be responsible for calculating and deducting income tax and NICs for any contractors that fall within IR35 rules via the PAYE system. Similar rules have applied in the public sector since 2017.

It’s important to note that the new update only applies to medium and large-sized businesses as defined by the following criteria in the Companies Act (2006):

  • Annual turnover is more than £10.2 million
  • Balance sheet total is more than £5.1 million
  • More than 50 employees

If your business meets two or more of these conditions, then you will need to ensure full compliance with the upcoming changes to IR35 and prepare to determine the employment status of any contractors you work with.

Your Essential IR35 Checklist:

This quick checklist is a good starting point to ensure you are covering all angles ahead of April 2021:

  1. Carry out a full audit of your contractors;
  2. Determine which contractors will fall inside IR35;
  3. Calculate accurate tax and NI payments;
  4. Prepare your new policies and agreements;
  5. Avoid the costs of non-compliance

If you need further advice on this please feel free to contact us.

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Practice Number: 21331

Jacqueline Tetley is licensed and regulated by AAT under licence number 5096.


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