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IR35 in the Private Sector 2021 changes

IR35

If you’re contracting through your own limited company, you probably already know that IR35 is changing from April 2021. In this article, we’ll explain what the up-coming changes are all about and what you can do to protect yourself and your income.

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What is IR35?

IR35, also known as the Intermediaries Legislation, is designed to prevent tax avoidance by so called “disguised employees” working through intermediaries, like your Limited company.

If you’re “caught by” or “inside” IR35, you’re deemed to be employed for tax purposes, and the legislation ensures that you pay roughly the same tax and NI as an employee would, which can have a significant impact on your net income. 

Public-sector contracts

If your end client is classed as a Public-sector body, they are now responsible for assessing the employment status of any contractors they engage. This means that if you work in the Public sector, the assessment of your status has been taken out of your hands.

In addition, if your client decides that you’re inside, PAYE tax and NICs must be deducted before payment is made to your limited company. This responsibility falls on the “fee payer” which is whoever makes the payment, usually either the end client or a recruitment agency.

Meanwhile, in the Private-sector

At the moment, if your end client is a Private-sector organisation, you are responsible for determining your own IR35 status. Whatever your status is, your end client pays your limited company’s invoices gross, and they have no involvement in your tax affairs. It’s up to you to account correctly for tax and NI, and you are liable if you get it wrong.

However, this is about to change as Private-sector reform will go ahead in April 2021.

  • Medium and large Private-sector companies will be responsible for determining the IR35 status of any contractors they engage.
  • Where the client determines a contractor is inside IR35, the “fee payer” (whoever pays your limited company) will have to deduct PAYE tax and NICs
  • The 5% of turnover allowance will no longer be allowed
  • There will be no change to IR35 itself; if you’re genuinely outside IR35 now, you should still be outside after the reform. The difference is that your client will be responsible for assessing your status.

As in the Public-sector, the main danger for a contractor is that you’ll be assessed as being inside IR35 when you’re not, but there are some things you can do to make that less likely.

How you can protect yourself

Make sure your status is correct now

Before we worry about someone else getting your status wrong, you need to know what your correct status is. Assessing IR35 can be complex, and we strongly recommend getting a professional review from an IR35 specialist.

A specialist will give you a detailed report, so you understand why they’ve come to their conclusions. They should also be able to advise you in ways you can strengthen, or possibly even change your position.

Once you understand your position it will be a lot easier to have the necessary discussions with your client.

If you’re clearly inside IR35

If your chosen specialist advises that you’re inside IR35, it’s important that you act on this information and account for your tax and NI correctly. If it’s a “borderline” decision and there’s something you can do about it they’ll advise you what action to take, but there could be nothing you can do.  

If all of your contracts are likely to be inside, it’s possible that umbrella employment will be the best options for you. However, we’d advise you to discuss your position in detail with a specialist contractor accountant before making any decisions.   

If you’re outside IR35

If your assessment confirms that you’re outside IR35, that doesn’t mean your work is done. It’s important to gather evidence to support your status at every opportunity. See our Guide to Demonstrating You’re Outside IR35 for in-depth advice on how to support, strengthen and maintain your outside status.

 Talk to your client

After the Private-sector reform, your client will be responsible for determining your IR35 status, just like Public-sector bodies are now. If you know you should be outside IR35, the best strategy is to help them make the right decision. If your current contract will still be running after 5th April 2021, it’s even more important to talk to your client about their intentions.

Your independent assessment and the evidence you’ve gathered could go a long way to helping your client understand your status, and make it less likely they’ll incorrectly assess you as inside IR35. Remember, it’s very much in your clients interests to assess your status correctly, so open lines of communication are key.

You may find that your client is unsure of the detail surrounding the reform or unclear about the preparations they need to make. If this is the case, it’s in everyone’s interest that they contact IR35 compliance experts like Orange Genie Compliance as soon as possible.

If you have any questions, or if we can help in any way, please contact our expert team on 01296 468 483 or email info@orangegenie.com.

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