Off-Payroll & IR35 explained

How do the rules affect you?


IR35 - Disguising Employment Status

What is IR35 and Off-Payroll?

IR35 is a tax law. It is properly known as the Intermediaries Legislation which came into force in April 2000 as part of the Finance Act. It's a set of tax rules that apply to individuals working for a Client via an intermediary which can be a limited company or personal service company. IR35 was introduced to tackle the problem of 'disguised employment' where organisations engage individuals on a self-employed basis rather than on an employment contract to avoid paying taxes.

Control, Substitution and Mutuality of Obligation

In short, IR35 involves applying three principles to determine employment status.
These are known as the principal 'tests of employment'.

From April 2021 the responsibility and liability now sites with the Client if they fall into either a medium or large-sized company .

If a company meets any two of the three criteria below, then Off-Payroll applies.

  • Turnover of more than 10.2 million
  • Balance sheet of more than 5.1 million
  • 50 employees/contractor

If these rules apply, both tax and National Insurance contributions must be deducted from fees and paid to the HMRC, however where organisations are exempt, the existing IR35 rules will continue to apply.

Status Determination Statements

Clients now must assess the IR35 status of each contractor via a Status Determination Statement (SDS). An SDS is a written statement confirming the employment status of a contractor following an IR35 assessment. This process must be carried out for every engagement using reasonable care. Completing an SDS for every engagement can be a huge administrative burden and can be very time-consuming. Under the Off-Payroll reform, the Client will have to pass the outcome of the SDS and reason for reaching the decision to the contractor as well as the party they contract with.

Click the following link, for more information on what an IR35 Status Determination Statement is.

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