Are you ready for the IR35 changes?

From April 2021 the rules for engaging individuals through personal service companies are changing.

A recent study has shown that more than half of UK employers who use contractors are still not yet quite prepared for the changes to private sector off-payroll rules, which are due to come into force this April.

Changes to IR35 after the transition were delayed because of the coronavirus pandemic, a poll of more than 3,000 contractors by IR35 Shield has found that more than half (52 percent) of those currently in work had yet to have their tax status assessed.

Under IR35 off-payroll rules, if a contractor is deemed to carry out similar or the same work as a permanent staff member, their employer is required to deduct income tax and national insurance contributions as if they were an employee. The legislation was introduced to ensure workers undertaking similar roles paid the same tax regardless of whether they were an employee or a contractor.

Changes to the rules that will shift the responsibility for deciding whether contractors fall ‘inside’ or ‘outside’ IR35 on to the employing businesses were due to come into force in the private sector this year, bringing it in line with the public sector. This was pushed back a year to avoid adding to the burden on employers caused by the coronavirus pandemic; however, the new rollout date of April 2021 is fast approaching.

The poll also found that quarter of respondents (23 per cent) said their client had imposed a blanket ban on limited company contractors. Of contractors polled, two-thirds (65 per cent) said they planned to avoid contracts that would place them inside IR35 and therefore see them taxed as an employee, while nearly three-quarters (72 per cent) said they would increase their rate to make up for the lost earnings. More than half (57 per cent) said they would likely leave their client because of their IR35 determination.

Contractors can help to provide incredible skill sets and flexibility for businesses, in cases where more lengthy process of recruitment, onboarding and HR is not appropriate for certain projects. It's worth businesses taking the time now to review their compliance to allow them the option of contractors in the future, or they could miss out.

Find out more about changes to IR35 here on gov.uk or get in touch with us should you require further support.