There’s been a lot of chatter lately about IR35, which you may have found hard to keep track of due to the coronavirus pandemic. If your business operates in the private sector, Aaron Gilmore of TreyBridge Accountants has put together all of the key information you need to know.
What is IR35?
The name itself isn’t very self-explanatory, which is another reason why many people are a little confused by IR35. It refers to the off-payroll working rules and its purpose is to enable HMRC to determine whether a contractor truly is a contractor, as opposed to an employee in disguise.
Why is IR35 needed?
There have been countless instances of contractors working as if they’re self-employed even though they’re actually employed by their own limited company. This brings greater tax efficiency but it’s actually a form of fraud and tax avoidance, which is why HMRC is cracking down by applying new rules.
When was IR35 launched?
IR35 has been around for a long time, as it was first introduced way back in 2000. Despite its relatively long history, there are still many grey areas and inconsistencies present, which necessitate clearer rules being put in place.
How does IR35 work?
It essentially operates as a test of employment status, showing whether a contractor should be working as an employee or a self-employed individual. If you’re an employee and qualify as IR35, there will be income tax and National Insurance contributions applied to your account by HMRC. If you’re outside of IR35 due to being legitimately self-employed for the work delivered, you have less tax to pay.
How are the IR35 rules changing?
Following a year of delays due to the pandemic, April 2021 sees the changes to IR35 finally coming into effect:
- It’s now the responsibility of medium and large businesses to ascertain the contractor’s employment status.
- The contractor should then be informed of the decision through an official Status Determination Statement, which they have the right to dispute.
- In the case of small businesses, it remains the contractor’s duty to work out their own employment status.
What qualifies as a small business?
To make the system foolproof, HMRC says that end clients qualify as small businesses if they meet at least two of the following criteria for two consecutive financial years:
- An annual turnover of no more than £10.2 million
- A balance sheet total of no more than £5.1 million
- No more than 50 employees
Seek professional advice
As with many accounting matters, IR35 comes with additional stipulations that revolve around specific situations and circumstances. If you believe that you need help with IR35, it’s crucial that you get in touch with a qualified accountant in order to maintain smooth operational processes and compliant financial activity.
Help with IR35
Aaron Gilmore is the owner of TreyBridge Accountants, which supports businesses large and small across the UK with all forms of tax legislation. Get in touch with him to find out more about how IR35 may apply to your private sector business and its suppliers.