The UK Government because of the COVID-19 pandemic didn’t have other options but to postpone the changes to IR35 reforms in the private sector from April 2020 to April 2021. As an update, the IR35 reforms ("off-payroll working principles") are expected to apply to any individual who uses an intermediary to provide services to the end-user client. These IR35 changes will affect contractors who use personal service companies (PSC) to provide services .
Large and medium private sector businesses, from 6 April 2021, will be liable for determining the employment status of contractors or freelancers.
The new principles will visibly see a move in current duty on status assurance, from the contractor to the end-client customer. IR35 changes won't matter to private companies that are classed as ‘small-companies’ or are wholly overseas with no UK presence.
In the Finances Act, the last draft of IR35 reforms was given Royal Assent in July 2020. Here we talk about some major changes that you’ll have to keep in mind:
Also See: Everything you should know about IR35
#1. Exemption of small firms: As per the Company Act 2006, a firm will be exempt from off-payroll reforms if it is considered small. It would be small, if:
- The firm has an annual turnover of less than or equal to £10.2m
- The firm’s balance sheet shows a total of less than or equal to £5.1m
- The firm has a total of 50 employees only.
It is the responsibility of the end-user client to ensure they are excluded because of their business size.
#2. The UK connection is mandatory for the end-user client: The rules will not be applied to the end-user clients who don’t have any connection to the UK. If the connection is set up through a “permanent establishment” then the end-user will be obliged to apply the off-payroll rules.
#3. Before 6th April any services provided won’t fall under the rules: In the event that services were completely given preceding 6 April 2021, however payment was done on or after this date, then the payment would not be subject to the new rules. The new principles would just apply to payments identified with services given on or after 6 April 2021.
#4. An intermediary is a Company: As per the Company Act, an intermediary is a company but now it will be extended. The rules will also apply to the company from which a contractor is going to get the payment or have received the payment.
#5. Improvement of CEST Tool: HMRC has confirmed that they will rely on the results provided by their CEST tool. It will keep on improving the CEST tool (an advanced tool which has been planned by HMRC to help public authorities and now private sector firms too to survey whether a contractor falls inside or outside the extent of the IR35 rules.
Numerous organisations are still managing the outcomes of the pandemic. Putting energy currently to check that you are prepared for the new rules will assist with ensuring a smooth change to the new reforms.
Also See: Tax Implications Outside IR35