If you employ contractors then you will almost certainly have heard of IR35, or as it used to be known, off-payroll working rules.
IR35 is designed to shape the legislation which determines whether or not a contractor who operates through a limited company or personal service company will be designated an employee of your organisation for tax purposes.
Michelle Tyson director of Tyson Wilson Recruitment and Tyson Wilson Temps said it’s important for all businesses to consider whether or not the new rules which came into effect on 6th April apply to them.
She added: “From the 6th of April the way the government approaches IR35 changed and so it is essential that contractors and employers both seek to understand how IR35 and the changes may impact upon their relationship.”
So what is changing?
Michelle said: “Previously, when it came to private sector companies, the burden has been on the contractor or employee to determine the status of their own employment arrangement for each individual contract.
“This means that before the change in IR35 rules, it was up to an individual contractor to declare their contract as falling within IR35 and therefore pay the appropriate tax and national insurance contributions associated.
“However, the change in the rules means that from 6th April 2021, it is up to the employer to establish whether or not the person is indeed an employee of the company. If it is discovered that the contractor is actually an employee of the organisation, and subsequently is not declaring their true rate of pay, and so as a result aren’t paying the correct tax and national insurance, then the employer organisation could be liable for extremely large fines.”
Michelle added that if it is found that other than the fact that the contractor is invoicing through a limited company or personal service company, they would be a permanent employee, the employer organisation would then be liable to cover all of the costs associated with employing someone such as tax or pension contributions.
What do you need to do next?
Michelle explained: “If you believe that how you interact with your contractors may or should change as a result of IR35, it’s important to engage with a number of next steps.
“Firstly, it is important to determine if you are a small, medium or large organisation by HMRC’s standards, this is because the new IR35 rules will not actually apply to small businesses.”
Michelle says that once businesses establish that they’re a medium or large business, there are a number of things they should consider doing next:
- Identify and review your current relationships with contractors and consultants.
- Ensure that the terms under which you engage with contractors and consultants are clear and that they fairly and accurately reflect the relationship between you both.
- If you believe that any or all of them may be indeed employees rather than contractors for IR35 purposes, you should consider changing their employment status to reflect this. You may want to explore the possibility or zero-hour contracts or casual working agreements.
“Understanding and addressing IR35 compliance within your organisation is both important and necessary if you are someone who regularly engages with contractors or personal service companies” said Michelle.
“This will ensure that you are tax compliant, will avoid any hefty fines as a result of non-compliance with IR35 and you won’t need to take on the commitment of adding someone to your payroll permanently and full-time.”
If you want more information which can help you better understand the key components of IR35, its impact on how you do business and of course how the changes in particular might impact you can download the Tyson Wilson free guide IR35 New Rules: Here’s What You Need To Know here >> https://tysonwilsonrecruitment.co.uk/free-guide-ir35
Alternatively contact Michelle Tyson at Tyson Wilson Recruitment on 07860636486 or info@tysonwilsonrecruitment.co.uk