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IR35 – A Clients Guide

The private sector’s contracting workforce is about to change as IR35 reforms are set to be introduced in April 2021.

Our IR35 business guidance section looks at what is changing, how you can make sure your business is prepared, and how to ensure compliance.

What is IR35?

The Government introduced IR35 almost 20 years ago, as a means of tackling off-payroll workers (contractors), who supply their services to a client, via an intermediary e.g. a Ltd Company or Umbrella Company, but who should actually be employed directly by the client.

Current IR35 rules aimed to stop contractors, who should be employed directly, from avoiding paying employee Income Tax and National Insurance contributions. According to HMRC, the current IR35 process has not been effective and therefore they believe that change is needed.

What is the current IR35 process?

At the moment, off-payroll worker assess their own IR35 status for each assignment, via their Ltd Company or Umbrella Company and make one of two assessments:

They class themselves ‘inside’ IR35, paying PAYE deductions.
Or they class themselves ‘outside’ IR35 which is classed as a genuine B2B service, and not subject to the same taxes as an employee.

Who is exempt from the new IR35 changes?

The change will apply to all medium to large companies (client end-users), but will not apply to small companies meeting any two of the following criteria:

Annual turnover of less than £10.2 million
A balance sheet total of less than £5.1 million
No more than 50 employees. Where the end-client is a small company, the responsibility for assessing and paying tax will stay with the contractor’s Ltd Company.

What is changing?

In 2017, the Government enforced IR35 reforms in the public sector, and they now plan to extend this to the private sector in April 2021.

Key change: Responsibility for defining the IR35 status of an assignment will switch from the contractors Ltd Company to the end user of the services – the client.

If a client uses a recruitment agency to pay their off-payroll workers, then the recruitment agency also shares responsibility for the IR35 status being assessed correctly. They must work together to ensure compliance.

Get prepared for IR35 with our 5 steps

There are 5 key stages that you need to put in place to create a compliant IR35 business plan.

The summary of this preparation comes down to two broad questions.

What do I need to do? As an end-user you must take ‘reasonable care’ in assessing your whole contracting workforce, documenting your assessment clearly.

Taking blanket decisions to assess you whole workforce will not work, and will cause a whole host of new problems, as demonstrated during the public sector IR35 roll out.

How long have I got to prepare? Time is of the essence. If you haven’t already, you must take the first steps towards organising your workforce assessment. Check out our recommended timeline to help you plan.

The bottom line is that as a client end-user you must take ‘reasonable care’ in your IR35 process. If not then you will open your business up to huge risks.

Get Prepared: We have delved deeper into the risks and opportunities, key timelines, and key stages in our Get Prepared section here.

IR35 compliant solutions

We have 5 solutions that can be tailored to the needs of your business to ensure IR35 compliance. We understand that each business has unique needs, different workforces and project requirements, and our aim is to assist you in achieving your goals by making compliance really easy.