Understand IR35 and Off-payroll rules

Know your contractor

This article was first published in Business Matters Magazine on 8 February 2021.

With the change to the way in which contractors who work with you will be taxed almost upon us (and the corresponding obligation on business regarding payroll) it is worth taking 10 minutes to wrap your head around which regime applies and what your obligations may be when you are looking for talent to support your business.

IR35 and off-payroll rules

IR35 and the off-payroll rules form part of the intermediaries’ legislation. It applies where a contractor engages with your organisation through an intermediary. The intermediary must be owned or controlled by the contractor and is typically a limited company (personal services company) or a partnership.

When making the determination as to whether the intermediaries’ legislation applies, the question is always: “would the person who is supplying the services be considered to be an employee of the business were it not for the fact they are doing so through the intermediary?” Until April 2021, the intermediary is obliged to ask and answer the question and, where required to do so, deduct and pay over the necessary income tax and NICs to HMRC (This is IR35 in its usual form).

With effect from 6 April 2021 the off-payroll rules shifts that obligation to ask the question to your business and, if the answer to the question is “yes” then your business must deduct income tax and NICs from the VAT exclusive amount of the fees and account to HMRC for the amount so deducted as well as employer’s NICs (and possibly apprenticeship levy).

There are some exemptions to who will be affected by the change, the most important of which is the small company exemption.

Read the article in full here.

This article is part of the Employment Law Newsletter – Winter 2021