The aim behind the IR35 legislation (off-payroll working rules) was to crack down on a particular form of perceived tax avoidance whereby individuals would seek to avoid paying employee income tax and National Insurance contributions (NICs) by supplying their services through an intermediary and typically paying themselves in dividends.
IR35 applies if a worker provides services to a client through an intermediary but would be classed as an employee if they were contracted directly.
An intermediary will normally be a worker’s personal service company, but could also be a partnership, a managed service company or an individual.
Changes to this legislation are being implemented in April 2020.
Current IR35 rules
Before 6 April 2020, if your worker provides services to a client through you:
- in the public sector, the client must decide your employment status
- in the private sector, you must decide your worker’s status
Changes to IR35 rules
From 6 April 2020, all public sector clients and medium or large-sized private sector clients will be responsible for deciding your worker’s employment status. This includes some charities and third sector organisations.
Medium and large-sized organisations are those which meet 2 or more of the following conditions:
• have an annual turnover of more than £10.2 million
• have a balance sheet total of more than £5.1 million
• have more than 50 employees
If IR35 applies, your worker’s fees will be subject to tax and National Insurance contributions.
Your worker should get an employment status determination from the client, as well as their reasons behind that determination. Your worker will be able to dispute the determination given to them should they disagree with it. To do this they will need to write to the client giving their reasons for disagreement, and the client will have 45 days from the date of receiving the worker’s disagreement to respond.
If your worker does not get an employment status determination
If you do not receive a status determination from the client, you, as the intermediary, should determine whether the off-payment working rules apply.