April 6th is fast approaching and with it comes a vastly different contracting landscape for contractors and agencies alike, as IR35 reforms for the private sector come into force.
Over the past few years, we have spoken in length about IR35 and the impact that reforms have had and will have on the industry. Following the introduction of public sector reforms in 2017, we saw the countless issues this created, largely down to a lack of preparedness and lack of guidance from the government.
As a result of this, we have actively worked with recruiters over the past few years to ensure that they are fully prepared for what these reforms will mean for their business and the contractors they work with. So, what are the critical things you need to know about IR35?
Why was IR35 introduced?
IR35 legislation was introduced in 2000 by HMRC (then Inland Revenue) as a way to tackle false self-employment. The aim of the legislation is to identify PSCs who are working on contracts that sees them work in an almost identical way to the way in which an employee of the business would work. In cases such as these, the contractor’s pay should show the appropriate tax and NI deductions.
What are the reforms?
Previously, contractors themselves were responsible (not to mention liable) for determining their own IR35 status. In 2017, for those working in the public sector, reforms meant that the responsibility for assigning an IR35 status fell to the end client or agency with whom the contractor was engaged with. From 6th April 2021, similar reforms will be introduced to the private sector, however these will only apply to medium to large businesses. Contractors working with businesses that meet the IR35 criteria of a ‘small business’ will still be responsible for their own status.
How to identify IR35 status
There are five key tests for identifying an IR35 status. These should be carefully considered on a contractor-by-contractor basis. ‘Blanket assessments’ of multiple contractors engaged with your agency will ultimately land you in hot water for non-compliance, meaning you could be liable for any missed tax and NI as a result of incorrect IR35 statuses, not to mention you risk a contractor taking you to tribunal for any income lost as a result of your mis-identification. The five tests of IR35 status are:
- Mutuality of obligation (MOO)
- Financial Risk
You can find out more about these tests on our article – How to identify a contractors IR35 status.
Where to find support with IR35
From countless articles and newsletters, to webinars and one to one sessions, we have pulled out all the stops when it comes to informing and guiding our clients through IR35, and our work isn’t over yet!
We are currently running a weekly webinar (Thursdays at 7pm) on the impact of IR35 on contractors and their options, book your place here.
For further guidance please contact our team today.