Changes to IR35 legislation

IR35 refers to two different sets of legislation that were created in 1999, in order to combat tax avoidance from employees and the firms that hire them. IR35 legislation sets out the tax rules for what is known as ‘off-payroll working’. This is where a worker or contractor, who would normally be considered an employee of a company, is instead working indirectly through an intermediary such as a Personal Service Company (PSC).

These tax rules are intended to ensure that workers, who would without the intermediary be deemed a direct employee, pay broadly the same amount in tax and National Insurance contributions as they would if employed directly by an organisation which they provide a service for.

When will IR35 rules change?

Changes to the rules surrounding off-payroll working were originally going to come into effect on the 6th of April 2020. However, the Government took the decision to delay this piece of legislation until April 2021 due to the coronavirus pandemic.

What are the current IR35 rules?

Currently, IR35 legislation covers all workers and contractors who would be deemed an employee, if not for the fact they are working via an intermediary such as a limited company. So, before 6 of April 2021 this means that:

•  For all workers/contractors in the public sector, it is the responsibility of the client providing the contract to decide worker/contractor employment status.
•  For all workers/contractors in the private sector, it is up to the intermediary (PSC, Limited Company etc.) to decide the worker’s employment status for each contract.

What changes to IR35 will happen in 2021?

From 6 April, all public sector authorities, as well as all medium and large private sector organisations, are responsible for deciding if IR35 rules apply or not. This essentially means that rules which for several years have affected the public sector, will now also affect many private sector clients too.

However, for all workers who provide a service to a small client in the private sector, it will remain the intermediary’s decision to decide worker employment status and whether rules apply.