If you’re a contractor or an employer that uses contractors, then there’s no doubt that you will have heard of IR35. IR35 is the anti-avoidance tax legislation that was designed to correctly tax ‘disguised employment’ at a rate similar to employment. Put simply, a disguised employee is a contractor who fills a permanent position within a company.
With news this month that IR35 has now passed through parliament, as part of off payment measures in the Finance Bill, we now know that IR35 will come into effect from April 2021. Originally scheduled for 6th April 2020, the launch of IR35 was pushed back due to the COVID-19 global pandemic.
What does IR35 mean for employers?
Medium and large companies are most affected and will need to consider how they approach roles filled by contractors. Businesses will need to prove that roles filled by a contractor are only temporary and don’t exceed a two-year requirement. The legislation states that any role that exceeds this can be filled by a full-time employee, where the responsibility of filing tax and national insurance to HMRC is with the hirer. This makes the business, and not the worker, liable for any incorrect assessment or unpaid taxes.
It’s estimated that almost a quarter of the UK’s workforce could be affected. Whilst the new rules may not be welcomed, the new launch date and information does provide companies with clarification and new guidance on how to get ready for April 2021.
How can companies get ready for IR35?
With nine months to go, businesses should act now. Starting with a full review of its staff and contractors, companies can use the government’s Check Employment For Tax (CEST) service to better understand the roles that will be affected. Contracts should be reviewed to determine the degree of control that the employer has over the contractor. For example, if the contractor cannot pursue other work outside of the company, work the hours they like and where they like, HMRC may assume that this person is an employee of the company, despite being self-employed via their own limited company.
It’s no secret that IR35 will cost companies a considerable amount of money. Potential National Insurance contributions, holiday allowance, and other payroll burdens should be evaluated to better understand the true cost to the business. Some businesses will undoubtedly have to make sacrifices, in the form of contract terminations and redundancies, in order to survive. However, those truly self-employed should be protected, in order to avoid any reputational damage or litigation against the company.
Finally, create new airtight recruitment policies and communicate any changes with your workforce. Communicating any new procedures to your employers, whether self-employed or not, will build trust and confidence within any business.
To find out more about Zoom Recruitment Services and how we can support your business, get in touch with our knowledgeable and friendly team today.