What is IR35?

We detail everything you need to know about the upcoming changes to off-payroll working rules.

IR35 reform in private sector April 2021

The IR35 off-payroll reforms came into force in the public sector in April 2017, and the government announced in Budget 2018 that they would be rolling out these IR35 reforms to the private sector in April 2020. However, due to COVID-19, the private sector IR35 reforms have now been delayed until April 2021.

What is IR35?

IR35 is anti-avoidance legislation targeting Personal Service Companies (PSCs). The government established this legislation to combat “disguised employment”.

If your contract has the same level of risk, responsibility, liability and control as a permanent employee, you are classed inside IR35. In this instance, you will are treated as a PAYE employee.

What does IR35 mean for you?

IR35 can affect the way you operate your business. If your contract deems you inside IR35, you will not benefit from the same tax efficiencies you otherwise would.

If you’re a contractor who is ‘inside IR35’, HMRC sees you as an employee and therefore subject to income tax and National Insurance. You don’t face this if you’re ‘outside IR35’.

How is your IR35 status determined?

HMRC’s complex test considers several factors when looking at your contract, including:

  • Control – how much control does your client have over your working conditions?
  • Substitution – do you have a replacement to undertake your work if you cannot fulfil your duties?
  • Mutuality of obligation – are you required to complete a specific task, or is there scope for your client to ask you to perform additional duties?

In April 2021, the responsibility for determining IR35 status in the private sector is shifting from contractors to end-users/clients.

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