Written by Andrea Frith
It is looking likely that the IR35 (off-payroll working) tax changes that were postponed due to Coronavirus, are set to come into force from April 2021. This is only months away and many companies should now be in the process of planning for this change.
What is IR35 and is it something you should be considering for 2021?
If your organisation utilises contractors who provide services through their own limited company, but who would be an employee if the limited company was not used, IR35 changes could affect you. Contractors have historically used this way of working to reduce the amount of overall tax paid. The IR35 rule came into force to ensure that a worker who could be an employee if they are providing services pay the same tax and NI as other employees.
In the past, the onus fell with the contractor to decide if their working arrangement fell inside IR35 (deemed as an employee and liable for NI and PAYE and the client would be liable for employment costs, NI etc) or outside, able to operate through a limited company. From 2021, this employment status will be determined by the client and as such any tax liability will lie with the employer.
What does this mean?
From April 2021, employers engaging the services of contractors will need to undertake detailed assessments to determine the status of individual roles. The use of the HMRC CEST tool will determine the status of the role. If it is deemed the role falls within IR35, the financial impact can be significant. In simplistic terminology, and by no means the complete picture, the 2 main questions the CEST tool will try to determine is:
• Is the contractor under the direct control and supervision of the end client?
• Is the contractor able to utilise the right of substitution and is the end client happy if this were to happen?
One thing that is absolutely clear is that any organisation engaging with contractors who provide services through a limited company either direct or via a supplier, will need to maintain a thorough audit trail to support their conclusions.
Early planning will be vital and when deciding on workforce planning for 2021, it is important that clients consider the implication this will have on contractor’s availability and willingness to provide services through limited companies.
Pertemps are able to provide support on what these implications are and options available on alternative recruitment methods. Please feel free to contact firstname.lastname@example.org for an informal chat.