IR35 Update — Changes from 6 April 2021

The rules remain essentially unchanged although further important developments take effect from 6th April 2021.

These latest changes may affect only individuals that are engaged by medium and large-sized private sector entities, and apply the same expectations as for public sector entities since April 2017. For these client entities, IR35 status is determined by the client rather than the contractor business. So if a client decides IR35 does apply, the contractor business will be taxed at source through the Real Time Information (RTI) system (exactly as if it were an employee). Note however that the employment status of any such contractors will remain unchanged (so that they will not receive any employee rights and benefits even if they are suffering tax and NI much like an employee).

For client engagements not in the public sector, or for medium and large-sized clients there is no change to the existing way of working, in that the contractor business decides whether or not it is within the scope of the ‘Intermediaries Legislation’.

Further Detail on IR35

IR35 remains a relatively complicated and hard-to-understand issue for contractors, their clients and professional advisors alike — the fundamental rules on it have not changed but case law since its introduction has helped clarify many of the parameters within which it may or may not apply. HMRC provides much advice on the subject.

The Employment Status Manual is also a useful reference, please click here. Worth noting that this guidance hasn’t been altered since July 2010.

Does it apply to you as a Contractor or a Client?

The first and most important point is to establish whether you are ’employed’ or ‘self-employed’ in the context of HMRC’s terms. To this end HMRC have provided a useful step-by-step tool that you can use to help determine your status (as either a contractor business, a client receiving services, or an agency employing a contractor worker).

As with most of the advice that is available on this subject, it is made clear that this tool cannot be relied upon to definitively assert your status one way or the other — it is intended as a guide only. For certainty you should seek the advice of your accountant or tax adviser (in the first instance otherwise seek out an accountant or tax adviser that can provide assurance).

So, what are your options?

We advise:

  • If you are operating outside of IR35 be ready to demonstrate that are what you say you are, have considered the legislation and have decided it does not apply to your business;
  • IR35 does not apply if you work overseas, although if you do you should seek professional advice on your personal tax status while working outside the UK, and on your income while away. There are many pitfalls to working abroad;
  • Consider going permanent — for your client if you fail the test and are not planning to change the circumstances of your work.

If in any doubt about your status and/or the changes to the IR35 rules you should contact HMRC or seek professional advice at the earliest — in monetary terms the risks can be significant so it is really important that you get it right, whether you are a contractor or the principal (client).