Recent Government legislation means that from April 2021 Medium to Large private sector companies will assume responsibility for determining how the contractors they engage with will be taxed.
The definition of a ‘Medium to Large company’ is one which meets 2 or more of the following criteria:-
- Annual Turnover > £ 10.5 Million
- Balance Sheet > £ 5.1 Million
- More than 50 employees
So lets’ take a step back – what is IR35 ?
HMRC applies certain criteria to determine whether a contractor is within or without IR35
Within IR35 means the contractor pays tax & National Insurance contributions as if they are directly employed by the client – This is deemed to be the case if the client decides working hours, start & finish times, promises work in return for payment, depends on that individual doing the work etc etc
Outside IR35 means the contractor pays their own tax & National Insurance normally by the use of a Limited Company & is deemed to be outside IR35 because payment is on a project basis, no work is guaranteed by the client, work can be done by a ‘substitute’, hours & start & finish times are not fixed etc etc
The main change is this:-
Currently IR35 status is determined by the Contractors Limited Company – from April 2021 this will be the legal responsibility of the client.
The full consequences are yet to become apparent but some organizations have already decided to apply a sweeping classification of all contractors as being within IR35.
Following on from Covid-19 & Brexix we have to challenge if this is the best approach to meet the needs of a dynamic & flexible economy.