6 April 2021 – Today sees the arrival finally of the IR35 reform into the private sector. Delayed by a year because of COVID, it is a change that affects thousands of businesses that engage contract workers, the recruitment agencies that source them and the contractors themselves.

The new rule changes are designed to make sure a contract (which is like an employment relationship) between a company and its client, pays the same tax and National Insurance contributions as those people who are employed directly. It is estimated that through contracting, a contractor may benefit financially by up to 25%, compared to their employed equivalent (source: FT Adviser 21 March 2021). The firm engaging the contractor also benefits from reduced employment costs.

What is the main IR35 change?

Contractors lose the right to determine their own IR35 status when working with a medium or large business*. Responsibility for the determination switches to the firm engaging the contractor. Put simply, a firm must decide if the worker should be employed or self-employed for tax purposes.

(*) Defined as meeting two or more of the following:

  • Annual turnover above £10.2 million
  • Balance sheet total is more than £5.1 million
  • More than 50 employees

Many small businesses will be exempt.

What do contractors need to be aware of?

  • IR35 applies on a contract by contract basis.
  • Whether the size of the company you are contracting with is affected by this change?
  • Expect your client to have new Status Determination process in place. Not only to determine the IR35 status of every engagement, but also to manage a challenge should you disagree with a determination decision.
  • Gov.uk has a tool to help to check employment status for tax purposes.

How can Confian help?

If you have a question about IR35 and how you might be affected, email us and we will be happy to help.