April 6 is fast approaching and it’s another important date in the IR35 calendar. This will mark the end of the so-called ‘soft landing’ for businesses in the private sector, the 12-month grace period during which HMRC said they would not issue financial penalties for inaccuracies, regardless of when inaccuracies were identified, unless there is evidence of deliberate non-compliance.

As HMRC's transition from education to enforcement approaches, the question arises - is your business ready for greater scrutiny?

What is IR35?

IR35 was first introduced in 2000 in public sector organisations and was designed to reduce tax avoidance by contractors whom HMRC believe to be ‘disguised employees’. This means people who work in a similar way to full-time employees but bill for their services via their limited companies (ultimately to make their business as tax efficient as possible).

From 6 April 2021, private sector businesses also become responsible for assessing the employment status of the off-payroll contractors they engage (i.e. anybody not being paid via the normal payroll channel).

Medium and large businesses in the private sector that contract with intermediaries for the provision of an individual’s services now have to account for tax and national insurance through PAYE if the underlying relationship between the end user and the individual would be one of employment. However, the reforms do not impact the smallest businesses. This means that where a company satisfies two or more of the following requirements they are deemed as a small business and sit outside the scope:

·        an annual turnover of not more than £10.2 million

·        a balance sheet total of not more than £5.1 million

·        no more than 50 employees

What do the rules mean?

In essence, the rules require an end user client to determine the employment status of an individual supplied via an intermediary. They will then have to communicate this determination and written reasons directly to the party that it directly contracts with and the individual themselves. If the end user client determines that, but for the intermediary, the individual would be an ’employee’ of the end user for tax purposes, the end user will need to account to HMRC for Income Tax and National Insurance contributions (both employer and employee) on any fees it pays to the intermediary (excluding VAT). Historically, the responsibility lay with the intermediary, so this was a significant shift.

What to do now?

If you’re not a small business owner in line with the above and have been impacted by the reforms, then we would suggest that your next steps are to revisit the approach you've taken up to now and check the determinations you've made to ensure you are happy to justify these as suitably robust.

If you are worried that there may be vulnerabilities in your business, contact us today for a free, no obligation chat.