Are you prepared for changes to the IR35 rules?
Exactly a year later than planned, changes to the off-payroll rules – known as IR35 – will take effect in the private sector next month. The emergence of COVID-19 delayed the changes affecting large and medium-sized private-sector organisations this time last year, but now it’s for real.
With lockdown restrictions still in place as the UK grapples to get on top of COVID-19, hopes were high that the Government might be considering kicking the can further down the road. But that seems to have evaporated with less than a month to go until the changes come in.
Who does it affect most?
The rules will affect medium and large-sized organisations, third parties or intermediaries, and contractors operating in the private sector. Small organisations are exempt.
As many as 170,000 contractors in the private sector who operate through their own PSC will also be affected, along with some charities and third-sector organisations.
The rules only apply to individuals who are considered to be working like employees under the current employment status tests, and do not affect the self-employed.
Checking Employment Status.
HMRC developed an employment status for tax tool (CEST) to determine whether or not a contract falls inside or outside of the rules, which was described as not fit for purpose, for not taking into account mutuality of obligation.
In November 2019, HMRC launched an “enhanced” CEST tool in a bid to address these concerns. Since then, the tax authority claims the CEST test has been used more than 230,000 times by over 160,000 users.
From 6 April 2021, accidental breaches of the off-payroll rules in the private sector will not be penalised for the first 12 months – unless there is evidence of deliberate non-compliance.
In February 2020, HMRC said it would not open new investigations into PSCs for tax years prior to 6 April 2020, unless there is reason to suspect fraud or criminal behaviour.
While this was before the COVID-19 pandemic took hold in the UK, this should remain the case from next month onwards.
With HMRC adopting a light-touch approach towards penalties, you have 12 months before it starts really cracking down on non-compliance.
If you haven’t already prepared, start by using the CEST tool as soon as possible to see if any of your 2021/22 contracts will fall within the IR35 rules.
You can read our previous article published in 2019 here, which covers more of the options available and more details about the original plans before COVID struck.
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