If you're a contractor in the UK, you'll be well aware of IR35 and the off-payroll working rules.
With the Covid pandemic and the rising cost of living, the rules have changed quite a bit in recent years.
In this article, we'll look at the latest updates to the IR35 rules and what it means for contractors in the UK.
What is IR35?
As of April 6th, 2021, the government has decided that all public sector organisations must use the off-payroll working rules.
This means that if you're a worker working for a contractor through an intermediary being a partnership, personal service company etc., for a public sector organisation, you'll need to be assessed for IR35.
Am I inside IR35 – Exemptions & Changes for Small Businesses
The good news is that the government has also introduced several exemptions for small businesses.
If you're a worker working for a small business with less than 50 employees, you'll be exempt from the off-payroll working rules.
This is great news for contractors in the UK and will help to keep the contracting industry alive and well.
If you're a contractor working in the private sector, the off-payroll working rules will not apply to you, provided the turnover is less than £10.2 million.
However, it's important to be aware that the government is constantly reviewing the off-payroll working rules, and they may be introduced in the future.
So, if you're working in the UK using an intermidiary, make sure you keep up to date with the latest news and updates on the off-payroll working rules.
Who is Responsible for the Determination of IR35 Applications?
The difference between IR35 rules in post-April 2017 and now in 2022 is that the client is responsible for employment status determination rather than the worker. However, if you are working for a small client, you or your intermediary still have the responsibility of status determination.
Previously, it was up to the worker to self-assess their employment status and determine whether they should be classed as an employee or a self-employed contractor.
However, from April 2021 onwards, it is the responsibility of the client to determine the employment status of the contractor.
If the client believes that the contractor should be classed as an employee, then they will need to deduct income tax and National Insurance contributions from the contractor's fees.
The client will also be responsible for paying employer's National Insurance contributions.
If the client believes that the contractor should be classed as self-employed, then the worker will be responsible for paying their own income tax and National Insurance contributions.
The main difference between being an employee and being self-employed is that employees are entitled to certain employment rights, such as sick pay, holiday pay and maternity/paternity leave
Self-employed contractors are not entitled to these employment rights.
It's important to note that the off-payroll working rules only apply to contractors who work through an intermediary, such as a limited company or an umbrella company.
If you're a sole trader, the off-payroll working rules will not apply to you.
Do I need a Contract? What is CEST?
Since April 2021 onwards, all workers who work through an intermediary need to have a contract in place with their client.
This contract must state the employment status and set out the contractual terms between the client and the contractor.
The government has also introduced a new online portal, called the Check Employment Status for Tax (CEST) to, which will be used to determine an employment status.
The CEST`s been available since April 2021 onwards and is in use by clients to assess the employment status of their contractors.
If you're a contractor who works through an intermediary, it's important that you have a contract in place with your client and that you're registered with the ESI.
What are the Off-Payroll Working Rules for Umbrella Companies?
If you're working through an umbrella company as a contractor, you may be affected by the changes to the off-payroll working rules.
After April 2021, all umbrella companies have become liable to have a contract in place with their clients.
This contract must state the employment status of the contractors and set out the contractual terms between the client and the umbrella company.
If you don't have a contract in place, just like limited companies, there is a good chance that you`ll be liable for any unpaid taxes.
Off payroll working rules have changed a lot since it`s first introduced in the early days of covid restrictions, with the flexibility of working from home, contractors found peace of mind to some extend yet the rules the determination process and the fact that you need a written contract in place certainly are game changing rules. It is best to keep the rules update with your accountant and take advice to decide what is best for you, in accordance with your industry.
