Have you heard of IR35 yet?
Chances are that if you haven’t, you soon will.
That’s because it comes into effect from April 6 and could have a major impact on all medium or large-sized private sector businesses which employ contractors.
From that date, responsibility for deciding the employment status of those contractors for tax purposes will switch to the employer doing the hiring and away from the contractor themselves.
It’s a significant change which has already been introduced in the public sector.
The IR35 rules were first introduced by the taxman ten years ago to try to crack down on people avoiding National Insurance and income tax by being employed through personal service companies.
You may well remember cases involving some leading TV personalities employed by our national broadcaster on this basis.
The rules are now being applied to medium and large-sized businesses in the private sector to make sure contractors pay the same tax as employees where necessary.
This means that if your business relies on specialist contractors for certain services, the responsibility to ensuring they operate under the correct employment status will fall on you from April.
The result is that if you are a medium or large business you will take on the burden of organising the correct National Insurance contributions and employment taxes for these contractors.
There is some relief though for small businesses which should be exempt from the new rules, although they will have to be certain to meet the conditions set out by HMRC.
Exemptions cover small businesses meeting at least two of the following conditions:
- Turnover of less than £10.2 million;
- A balance sheet figure of less than £5.1 million; and
- Fewer than 50 employees.
But if you are not exempt, what should you be doing now to make sure you are ready for the April change?
It’s vital that you review the manner in which you employ all contractors or freelancers paid through a personal service company to see if IR35 applies to them.
There is help available for doing this at https://www.gov.uk/guidance/check-employment-status-for-tax but it’s worth keeping a record of everything you do to assess an IR35 case as a backup.
And if you need expert help and advice, we are just a click of a button away and happy to give a free consultation.