The 12-month grace period for changes to IR35 is coming to an end. Are you ready?
April 6 marks the end of the so-called ‘soft landing’ period for businesses affected by the major changes to IR35 (or off-payroll working rules) in April 2021.
This 12-month grace period allowed companies to get to grips with the complex changes made to IR35 safe in the knowledge that they would not be penalised for non-compliance. With only 2 months left, it’s time to ensure you have the correct processes in place to meet these changes and that you can demonstrate the reasons behind the determinations you’ve made in order to avoid possible penalties. To help with this, here is a quick recap of what was introduced last year:
What were the changes made to IR35 in April 2021?
The major change to IR35 is that it is now the responsibility of medium-sized and large businesses to:
- Determine a contractors employment status, not the contractor.
- Make an assessment and issue a Status Determination Statement (SDS) to contractors outlining their decision.
- Be responsible for Payroll reporting and the deduction of NI and tax where a contractor is classified as an Off Payroll Worker and subject to IR35.
Why were these changes introduced?
The legislation has been introduced to tackle the issue of “disguised employment”, where a contractor acts as an employee whilst working through an intermediary, such as a limited company or personal services company (PSC).
Who do the IR35 changes apply to?
Off-payroll working rules apply to all public sector and to private sector companies that meet two or more of the following:
- Annual turnover of more than £10.2 million.
- Balance sheet total of more than £5.1 million.
- More than 50 employees.
Who is excluded from IR35?
Off-payroll working rules do not apply to small businesses and self-employed sole traders or overseas clients without a UK residence or UK establishment.
In addition to this, personal service companies working for small clients are still covered by the previous rules. This means it is up to the PSC to determine the worker’s status.
In its efforts to help businesses with the changes to IR35, HMRC offers an online Check Employment Status Tool (CEST) which presents a series of questions in order to help determine employment statuses for tax purposes.
The CEST results can also be used for the Status Determination Statements.
It’s worth noting that CEST entries and results are not retained by the authorities so it is recommended that users download or print the results and retain on file.
We hope this has helped, and if you are still unsure around your compliance or your processes, act now before the grace period ends and HMRC comes knocking.
Further guidance can be found on Gov.uk:
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