IR35 in the private sector

Are you prepared for changes to the IR35 rules?

Exactly a year later than planned, changes to the off-payroll rules – known as IR35 – will take effect in the private sector next month. The emergence of COVID-19 put paid to the changes affecting large and medium-sized private-sector organisations this time last year, but now it’s for real.

They were originally introduced back in 2000 to ensure that someone working like an employee, but through a company, pays similar levels of tax to other equivalent employees.

Non-compliance was forecast to cost the Treasury around £1.3 billion by 2023/24 if not tackled, prompting the Government to reform the rules starting with the public sector from April 2017.

This shifted the responsibility for determining employment status from an individual contractor to the organisation engaging them, with the aim of increasing compliance.

Now it’s the private sector’s turn.

From 6 April 2021, organisations that engage contractors through personal service companies (PSCs) or other intermediaries, such as partnerships or limited liability partnerships, will need to assess whether the rules apply to contracts they enter into.

Where the IR35 rules do apply, the private-sector organisation paying the PSC or other intermediary needs to deduct income tax and National Insurance contributions (NICs) at source before making the payment, and pay employers’ NICs.

With lockdown restrictions still in place as the UK grapples to get on top of COVID-19, hopes were high that the Government might be considering kicking the can further down the road.

But that seems to have evaporated with less than a month to go until the changes come in.

Download our full IR35 in the private sector business guide here