IR35 or the off-payroll working rules apply when a contractor provides their services through their own limited company or another type of intermediary (agency or employment business) to a client.
The rules ensure that contractors pay Income Tax and National Insurance contributions in the same way as regular employees of the business do.
From 6 April 2021, all public authorities and medium and large-sized clients outside the public sector are responsible for deciding if the rules apply. The rules apply those that meet 2 or more of the following conditions:
- you have an annual turnover of more than £10.2 million
- you have a balance sheet total of more than £5.1 million
- you have more than 50 employees
If you’re a small-sized employer in the private sector you’ll not have to decide the employment status of your workers. This will remain the responsibility of the worker’s intermediary (usually a limited company). However, you must confirm your size if asked by the person or organisation you contract with, or the worker. This is to make sure that you, agencies and workers can consider what rules apply.
Who do the IR35 rules apply to?
IR35 will apply to you if you are:
- providing services through an agency or employment business
- a client who receives services from a worker through a recruitment agency
- an agency providing workers’ services through their intermediary
If the rules apply, Income Tax and employee National Insurance contributions must be deducted from fees and paid to HMRC. In addition, employer National Insurance contributions and Apprenticeship Levy, if applicable, must be paid to HMRC by the person who pays the worker’s intermediary.
An individual’s employment status for tax determines the taxes the worker and client, or the person paying the worker’s intermediary need to pay, depending on whether a worker is employed or self-employed.
When the IR35 rules apply
IR35 rules will apply to a worker who provides their services to a client through an intermediary but would be classed as an employee if they were contracted directly. The IR35 rules will need to be considered on a contract-by-contract basis.
A step-by-step guide to IR35 for our employers
Audit your current workforce:
- Identify individuals providing services through their own limited company, personal service company or intermediary.
- Establish a process for identifying future employees
Talk to the identified individuals and agencies that you work with:
- Share the contractor factsheet
- Ask for any information that you require
Determine on a case by case basis if the rules apply:
- Check each individual case for contracts lasting beyond 6th April 2021
- Determine the decision maker within the company, using the CEST service if required.
- Share the businesses decision with individuals using the Status Determination Statement to do so.
- Keep records of the process from end to end as an audit trail.
Make adjustments to PAYE:
- Ensure the correct Income Tax and National Insurance contributions are taken from 6th April 2021.
- A legal requirement of the process is to formulate a process for disagreements.
Complete this process again for:
- Renewal of contracts
- Changing contractual arrangements
- New work practises
- All new contracts
Further IR35 resources
Detailed guidance for off-payroll working
Visit the HMRC website for further guidance including webinars, emails, and videos.
use the Check Employment Status for Tax service to help you decide if the off-payroll working rules apply.