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Are you ready for IR35?
IR35 are the off-payroll working rules that currently apply to a contractor that provides their services to a client or organisation through their own limited company or any other type of intermediary such as a partnership, a personal service company or an individual.
Changes to the IR35 were due to come into effect in 2020 but were postponed for a year with changes now expected to come into force on 6 April 2021. Organisations that receive services from individuals through their own limited company are responsible for deciding whether the new rules apply and must take the necessary steps to prepare for these changes.
How will the current rules change?
- The responsibility is currently on the contractor to determine their employment status and therefore their levels of tax and national insurance contributions.
- Following changes to the rules, the responsibility will shift to large and medium sized organisations in the private sector for assessing the employment status of contractors of which they receive services from.
Why are the current rules changing?
- The changes to the rules ensure that workers, who would have been an employee if they were providing their services directly to the client, pay similar tax and National Insurance contributions as employees of that organisation.
If you have not yet prepared for these changes, here are some steps to consider taking ahead of 6 April 2021
- Identify the individuals or contractors who supply their services to you through their own limited company or intermediaries. Make a list of these contractors, in particular those contracts that will continue to run after April 2021.
- Talk to your contractors. Help them understand how the changes may affect them and ask any questions that you may need to determine whether IR35 arrangements apply.
- Determine whether IR35 arrangements apply. The HMRC recommends organisations use their Check employment status for tax(CEST) service to help make a determination. Organisations must ensure accurate information is entered and that it is used in accordance with HMRC guidelines.
- Once determined, communicate with the contractor. It is your responsibility as an organisation receiving the individuals service, to provide them with a ‘Status Determination Statement’. Explain the outcome and provide reasoning for the determination.
- Consider who in your organisation will operate PAYE. Processes must be in place to ensure income tax and national insurance contributions are correctly deducted.
- Understand your legal requirements. Organisations must have a dispute process in place to deal with complaints from individuals or contractors who disagree with their decision. They must also keep records, maintaining an audit trail. Both of which are legal requirements.
- Test your new adopted processes, systems, and controls in advance to ensure you are fully prepared.
Are you a medium or large organisation that receives services from an individual or contractor through their own intermediary? If so, changes to the IR35 rules may apply to you. Make sure you are aware and are ready to make these changes ahead of April 2021 to avoid risks or costs to your organisation.
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