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IR35 update: HMRC’s private sector reforms delayed until April 2021

In last week’s 2020 Budget, the government confirmed that the extension of IR35 reforms to the private sector would go ahead as planned next month. However, it has this week been confirmed that there will be a one-year delay to controversial changes to the off payroll working rules amid concerns about their potential impact during the coronavirus pandemic. The government was keen to emphasis that this is merely a pause, rather than a cancellation.

This means that, from 6 April 2021, medium to large private sector firms will assume responsibility for determining whether contractors they engage with, who operate through personal service companies, are in fact employees (inside IR35) or should be treated as self-employed (outside IR35). ‘Medium to large’ firms are defined as businesses, which meet at least two of the following three criteria: having an annual turnover of more than £10.2m; a balance sheet total greater than £5.1m; and more than 50 employees.

If the contract is deemed to be one of employment, then the responsibility for calculating and deducting the tax and national insurance contributions due will lie not with the personal service company (which is currently the case) but with the fee paying firm. If the contractor is self-employed the payments can be made gross.

However, even  if the consultant is deemed to be employed for these purposes, the fee-payer (despite being liable for PAYE and NICs)  will not be liable for student loan deductions, statutory payments, or auto enrolment for pensions.

If your business is using contractors you must provide them with a statement of how their status has been determined, and give the contractor an opportunity to appeal against the determination.

HMRC updated guidance

HMRC has provided guidance on the rules, along with an on-line status determination tool for contractors and clients to use, which can be accessed here https://www.gov.uk/guidance/check-employment-status-for-tax

For further information on IR35, please contact Fiona Phillips at Andrew Jackson Solicitors, e: fiona.phillips@andrewjackson.co.uk or speak to the team by calling 01904 275 250.

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