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IR35 legislation changes
what is IR35?
IR35 is the common name given to the intermediaries legislation. That is the legislation governing the tax status of individuals who provide their services through an intermediary such as a limited company (commonly known as a personal services company or a ‘PSC’).
how does IR35 work?
IR35 applies where the intermediary is not deducting PAYE income tax or national insurance contributions from the payments to the individual. IR35 asks the question, “would the individual be an employee of the end-user if the intermediary was removed from the contract?”. If the answer is yes, the intermediary company is obliged to make a deemed payment calculation which has the effect of treating the income as employment income.
what changed in April 2021?
Back in March 2020, Chief Treasury Secretary Steve Barclay announced the Government's decision to delay the implementation of the IR35 legislation by 12 months.
- As of April 6th 2021, the new changes came into force
New legislation changed how IR35 applies in the private sector. The most significant change being the shift of responsibility to the company (end users) to determine the tax status of PSCs’ engagements (typically companies hiring contractors). The organisation paying for the services will be responsible for making the relevant deductions.
Last year HMRC announced that IR35 would only apply to payments made for services provided on or after April 6th 2020, which was delayed by a year. This means that clients now determine if PSCs are in scope or out of scope of IR35, and they will do this by issuing a status determination statement or SDS. If they don’t do it or if they get it wrong, they may be liable for unpaid taxes owed by the PSCs.
why did IR35 happen?
Similar changes have already been implemented in the public sector in 2017. HMRC have considered them a success and have established three primary objectives for changing the legislation in the private sector:
- provide a better framework for assessing employment status.
- ensure that two individuals doing the same job are paying the same levels of tax.
- adapt to a rapidly evolving flexible labour market and emerging business models.
who does IR35 affect?
The legislation applies only to medium or large businesses. There’s an exemption for small businesses which means meeting two or more of the following criteria (if not part of a larger group):
- Annual turnover is no more than £10.2 million.
- Balance sheet total is no more than £5.1 million.
- No more than 50 employees.
Where a business meets two or more of these criteria, responsibility for determining the IR35 status of engagement remains with the PSC and the changes do not apply.
how will IR35 affect my pay?
We’re often asked what the impact of the new IR35 rules will have on contractors, especially when it comes to contractor’s wage packet. As a guideline, contractors in scope of the IR35 rules may see a 10-20% reduction on their take-home pay.
what to do next.
If you have been selected as a potential candidate and will be supplying your services as a PSC (provided that the company allows PSC engagements), Randstad will be in contact with the company to get their ‘status determination statement’ in relation to your potential assignment. We will communicate this to you as soon as we receive a response from the business.
does IR35 apply to me?
what if my assignment is in scope of IR35?
If your assignment is deemed to be in scope of IR35, Randstad will offer you the following options:
- to be payrolled by Randstad under a contract for services on a PAYE basis (not via your limited company).
- to be payrolled by Randstad via your limited company but with income tax and national insurance deducted at source by Randstad.
- to engage with an umbrella company that forms part of our own PSL (please see further details below).
what if my assignment is out of scope of IR35?
If your assignment is deemed to be outside the scope of IR35 by the client, we will pay you gross of income tax and national insurance and your PSC will be responsible for making the right tax and national insurance payments according to your own company’s arrangements.
Flow chart of IR35
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