IR35 BACK a year to April 2021
18 March 2020
In light of the ongoing spread of coronavirus, it has been announced by the government that the extension of IR35 to medium and large companies in the private sector is being put BACK a year, to 6 April 2021.
By way of background, IR35 is a piece of complex tax legislation that was introduced in 2000 to target a tax loophole that HMRC considered may result in an underpayment of tax contributions. The legislation was designed to make sure that an individual who works like an employee, but through their own limited company, pays broadly the same Income Tax and National Insurance contributions as those who are employed directly.
The intention was that as of 6 April 2020, the burden for assessing employment status in the private sector would be shifted to the ‘end user’ i.e. the business engaging the self-employed individual whether directly or through an intermediary business with the anticipated changes due to bring circa £3.1 billion in additional tax revenues within the next four years. It was considered that the use of self-employed individuals is prevalent with the transport sector and this would therefore need to be addressed in order for operators to remain compliant with tax legislation.
When the changes do come into effect on 6 April 2021, will this affect me as an operator?
The changes will apply to medium and large business only and there is currently a small company exemption that applies. A medium and large business is defined as a business that meets two of the following three criteria:
- A turnover of more than £10.2 million;
- A balance sheet total of £5.1 million or more; or
- More than 50 employees
Businesses that fall within the above criteria must take control of determining an individual’s employment status for tax purposes. If you engage individuals, either directly through a Personal Service Company (PSC) and/or another form of intermediary company, you must act now and
Can I do anything in preparation for the change?
Operators both large and small should be reviewing the status of those individuals they engage, whether that is directly engaging the individual or through any form of limited company or agency and seeking to implement change.
Backhouse Jones will continue to provide updates and discussion in relation to this topic. For all immediate queries, please contact our employment team on 01254 828 300.
