The IR35-off payroll reform is a topic that has been making headlines in the UK for quite some time now. This reform, which was introduced on April 6th, 2021, has significant implications for both IT contractors and businesses.
We spoke about the changes to IR35 off-payroll back in 2021 on our blog 'IR35 off-payroll changes and how it affects contractors and businesses' and with the recent spring budget last month (read more about that here) there was speculation that these changes might be reversed by Jeremy Hunt.
However, unfortunately for self-employed individuals, no U-turns we’re announced.
So as it stands – each contractor's role is individually assessed within the guidelines and determined as either inside or outside IR35 – and businesses will continue to assess each contractor's individual working practices.
In this article, we'll summarise what IR35-off payroll reform means for IT contractors and businesses.
Let's understand what IR35 is...
IR35 is a tax legislation that was introduced in 2000 to tackle tax avoidance by workers who were using intermediaries such as personal service companies (PSCs) to disguise their employment status. The legislation was introduced to ensure that workers acting as employees were paying the same tax and national insurance contributions as other employees.
So what does that mean for you?
Under the new IR35-off payroll reform, all medium and large companies in the private sector are now responsible for determining the employment status of their contractors for tax purposes. This means that businesses must assess whether the contractor is a genuine contractor or whether they should be treated as an employee for tax purposes.
If a contractor is deemed an employee for tax purposes, the company must deduct income tax and national insurance contributions from their pay and pay employer national insurance contributions. This means that IT contractors will no longer be able to benefit from the tax advantages of operating through a PSC.
For businesses, the IR35-off payroll reform means that they will need to take extra care when engaging with contractors. They will need to carry out a thorough assessment of the contractor's employment status and ensure that they are paying the correct amount of tax and national insurance contributions.
The truth is...
The assessment process can be complex and time-consuming, and businesses may need to seek professional advice to ensure they are complying with the legislation. Failure to comply with the legislation can result in fines and penalties.
The IR35-off payroll reform has caused some controversy.
Many IT contractors have argued that it will lead to a reduction in their take-home pay and make it more difficult for them to win contracts. However, supporters of the reform argue that it will ensure that workers are paying the correct amount of tax and national insurance contributions and will level the playing field for employees and contractors.
The IR35-off payroll reform is a significant change that will affect both IT contractors and businesses and it's important for businesses to carry out a thorough assessment of their contractors' employment status and for IT contractors to be aware of the changes and how they will affect their take-home pay. Seeking professional advice can help both parties navigate the complexities of the reform and ensure compliance with the legislation.
For more information on IR35 and how it affects you as an IT contractor or business that hires IT contractors
Take a look at our previous blog here
Visit Gov UK Website