If you are a worker or contractor who provides their services through their intermediary, a client who receives services from a worker through their intermediary, or an agency providing workers’ services through their intermediary, you would have undoubtedly heard about the IR35 rules or the ‘off-payroll working rules’.
The Government is proposing changes to the rules that will come into effect on 6th April 2021 and this blog will explore the current position as well as the proposed changes.
IR35 Rules explained
Also known as the ‘off-payroll working rules’, these apply if a worker/contractor provides their services through their own limited company or another type of intermediary to the ‘client’ (an intermediary would usually be the worker’s own personal service company but could also be a partnership or an individual).
The purpose of these rules is to ensure that workers pay broadly the same tax as National Insurance contributions as employees – this is on the basis that such workers would have been an employee if they were providing services directly to the client.
If the rules apply, tax and National Insurance contributions must be deducted from fees and paid to HMRC.
So what does this means in practice?
The Government made available an online ‘tool’ to help workers and clients ascertain whether the IR35 rules apply to their specific circumstances (available here – check employment status for tax).
However, if there is a dispute regarding the application of the rules and the employment status of the worker, the Court has discretion to settle such dispute.
Recent cases suggest that the Court may interpret the definition of ‘worker’ widely and regardless of any consultancy agreements that may be in place between the intermediary and the client (whether written, verbal, or implied by behaviour), the level of control over the terms on which the worker is engaged may be a determining factor in ascertaining whether or not the worker is actually a worker or employee of the client, notwithstanding the status on paper.
What is the current legislation?
The current legislation places an obligation on the ‘client’ (within the public sector only) to ascertain the employment status of the worker. This means that, if you are a worker and provide services to a ‘client’ within the public sector, you should be informed of your employment status by your client.
However, if the services are provided to a ‘client’ in the private sector, it is the worker intermediary’s responsibility to decide the employment status in respect of each individual ‘client’.
What are the changes from 6th April 2021?
The proposed changes were due to come into effect on 6th April 2020, however, these have been delayed until April 2021 due to the spread of the coronavirus.
From 06 April 2021, all public sector authorities, as well as medium and large-sized private sector clients, will be responsible for deciding if the IR35 rules apply and ascertain the worker’s employment status.
The worker’s intermediary will therefore only be responsible to ascertain the worker’s employment status and if the rules apply in respect of clients that fall within the definition of ‘small’ and are within the private sector.
Whether you are a worker, an intermediary, or an organisation seeking to engage a worker, the Corporate and Commercial Department at Fisher Jones Greenwood LLP can assist you with any questions you may have regarding the application of the IR35 rules and how these may affect you.