Most employers will previously not have paid too much attention to the IR35 legislation which applied specifically to the public sector. This was about the way in which businesses engaged contractors for tax purposes.
The rules, known as IR35, were first introduced in 2000 to ensure people who were working like an employee, but through their own limited company, paid broadly the same tax as someone employed directly. Previously, contractors providing services for organisations outside the public sector were themselves responsible for deciding their employment status for tax purposes. Now, the onus is on those employing organisations who meet specific criteria, to assess contractors’ IR35 status.
The extension of the rules had been due to come into effect in April 2020, but this was delayed due to the Coronavirus pandemic. However, it came into force on 6th April 2021. So, does it apply to your business and if so, what do you need to do?
The rules will apply to all public sector bodies and private sector companies that meet 2 or more of the following conditions:
1. You have an annual turnover of more than £10.2 million
2. You have a balance sheet total of more than £5.1 million
3. You have more than 50 employees
It may therefore not apply to the smaller SMEs but is likely to affect medium sized companies and compliance may be asked for through your supply chain, so is worthwhile checking.
You will find updated guidance at https://www.gov.uk/guidance/april-2020-changes-to-off-payroll-working-for-clients#conditions
The rules are complicated and is may not be easy to make a determination using the HMRC online assessment tool. Therefore the government has responded to concerns from both businesses and the self-employed by announcing that firms that accidentally fall foul of the rules will not face fines during the first year of the new rules.
“We will not charge a penalty if you took reasonable care to apply the off-payroll working rules correctly but still made a mistake, including making mistakes in status determinations,” official guidance stated, saying that unless there was evidence of deliberate non-compliance, HMRC would encourage employers to “self-correct” errors before considering whether the government needed to intervene further.