WHAT IS IR35?
IR35 rules were first introduced in 2000 with the aim of ensuring that individuals who are working like employees but who operate via an intermediary (most commonly a Personal Service Company – ‘PSC’) pay the same tax and NICs as an employee.
HMRC had been concerned for some time about the increased number of PSC’s not being tax compliant. From 6 April 2017 responsibility for assessing the tax position on engagements with PSCs working in the public sector, shifted to the end-user or hirer. In October 2018, HMRC confirmed that the public sector rules would be extended to the private sector. This means that, where engagements between the end-user and a PSC have the features of employment, the fee payer must account for tax and NIC.
Implementation of reforms to off-payroll working rules were delayed for 12 months as part of the governments Covid-19 response but were introduced on 6th April 2021.
SO WHAT HAPPENED NEXT?
When IR35 was extended to the private sector a lot of companies took an initial step to no longer engage with PSC’s or to transfer their freelance community to PAYE agreements as the risk and extra charges were not commercially viable.
This had a huge impact on the professional Freelancer community as many saw their opportunities for work reduced. And for companies this meant that they were unable to engage some incredible talent.
WHAT ARE YOUR OPTIONS IF AN ASSIGNMENT IS WITHIN IR35?
The final choice of payment model will be taken by the contractor.
The two most popular alternative contractual models are for a contractor to;
- Remain working through their PSC but the appropriate taxes and NICs are deducted by the fee payer.
- Convert to be engaged as PAYE (not via their PSC) for the duration of the engagement. Note this does not mean that they will become an employee.
If you have any questions or concerns about IR35 please get in touch.