IR35 Done Right.

IR35 is tax legislation to make sure that the right amount of tax is paid for ‘disguised employees’. The legislation will be effective April 2021. These rules have been in operation in the public sector since 2017, and now they are being rolled out to the private sector. So, all clients who use contractors will have a primary legal obligation to assess the contract in advance and determine the IR35 status of the contract. With that comes significant tax compliance risk.

A person is in disguised employee if they provide their services to a business via a Professional Services Company (PSC) and both of these criteria are met:
1. The individual personally performs, or is under an obligation personally to perform, services for you.
2. If there were a direct contract, the individual would be regarded for tax purposes as an employee (or you’ve made them an office holder).

From April 2021, the legal responsibility for determining whether or not a contractor performing services is a ‘disguised employee’ (their ‘IR35 status’) will transfer from the PSC to the client engaging the contractor.

The official response from HM Treasury after a recent petition to delay IR35 until COVID-19 is resolved states:

The Government has already delayed this reform until April 2021 in response to the COVID-19 crisis. However, there will not be a further delay. The legislation has now received Royal Assent, and the reform will be implemented in April 2021 as announced.

Further delaying implementation of these changes would also have other very significant drawbacks. Non-compliance with the off-payroll working rules outside the public sector is expected to cost £1.3 billion per year by 2023/24 if not addressed. As well as the fiscal cost, delay would prolong the fundamental unfairness of taxing two people differently for the same work. Further delay would also extend the disparity between the private and voluntary sectors, and the public sector, where the reform has been in place since 2017.

Read the full response from the UK Petitions website.