IR35

IR35 changes in April 2021

The Government has now published the Finance Act and has confirmed that the IR35 changes previously scheduled for April 2020, will now happen on 6 April 2021.  From that date, the responsibility for managing IR35 moves away from personal service companies to clients and fee-payers.

• If your client is a public authority, the rules which took effect in April 2017 remain in place (with some amendments). 
• If your client is a private sector client, you need to know whether they are exempt from the changes or not. Clients who are small or who have no UK connection will be exempt from the changes - when a PSC provides their services to an exempt client the PSC remains responsible for IR35. 
  • Who has to do what? If a client is not exempt, it must provide a status determination statement to both the worker and the party it has a contract with.  That statement must confirm whether the engagement is ‘inside IR35’ or ‘outside IR35’. If it is an ‘inside IR35’ engagement, the fee-payer (who has the contract with the PSC) must deduct tax and national insurance before paying the PSC.  Employers’ national insurance will also be due. If it is ‘outside IR35’ the fee-payer can pay the PSC gross.

• Preparation: With just 7 months to go (and a further delay highly unlikely) businesses must prepare for the changes. That includes understanding what clients are captured (or not), what roles are filled by PSCs, how clients will make their determinations, who is in the supply chain, what happens to pay and charge rates, how to report payments and what records to keep.
• HMRC activity: HMRC are currently updating their Employment Status Manual (in particular look at chapter 8000, 10000 and 11000). This is guidance only but it is useful to understand HMRC’s interpretation of the law.  They are also consulting on how to tackle disguised remuneration schemes.
• Contracts and other resources: REC Legal are currently working on updated contracts and will release these in the coming months. We are also updating other written materials, including for use with both clients and contractors. Meanwhile, check out our guide 'What the IR35 delay means for agencies'. Please keep an eye on this IR35 hub, our Legal bulletin and bitesize, and the IR35 section of the legal guide for updates.
• Virtual seminars: We will start our 2020/21 practical IR35 seminar series on 16 September.  For the remainder of 2020, all our seminars will be virtual.

Prepare your business for the new IR35 rules with REC's virtual seminars

Our virtual seminars will give you a practical understanding of what you need to do now ahead of the change next year - it is now confirmed in statute as this will be in place from April 2021. View the IR35 events calendar and book your spot today.

Key points about the IR35 delay: 

• If your client is a private sector client, it does not have to do anything at the moment.  Up to and including 5 April 2021 the personal service company (PSC) remains responsible for assessing IR35 and for making tax and national insurance deductions accordingly.  Agencies can continue to pay PSCs gross and will not be liable for their failure to comply with the IR35 unless (under existing legislation such as the Criminal Finance Act 2017) it can be shown that they are involved in the facilitation of tax evasion.
• If your client is a public authority, the rules which took effect in April 2017 remain in place. 
• Status determination statements (SDS): We spoke with HMRC this morning (18.03.20) and asked them about SDSs which clients have already produced and agencies have acted upon. They advise:  

1. SDSs which have already been made will have no standing so HMRC will not be interested in them. Contractors working in the private sector remain responsible for managing IR35 until April 2021. HMRC confirmed they will not consider any SDSs made if they open an investigation into a contractor in the meantime.  They will release a statement on this later.
2. Clients who decided to ban PSCs and require contractors to work via PAYE (whether agency or umbrella) need to decide whether to continue with that ban or to allow PSCs back. That is their decision.

Contracts:

• Members can continue to use the contracts they currently have with clients and temporary workers/contractors alike.  REC Legal had been working on new contracts to reflect the changes.  We also conducted a fundamental review of our contracts.  We will release the new contracts at some point in the future so that members can manage the transition to those contracts when it suits them.  We will then update contracts in time for the April 2021 changes.
• HMRC will continue their existing compliance activities. REC has asked HMRC to reiterate in their communications and guidance which schemes they already deem to be non-compliant as a warning not to use these schemes in the coming year.
• HMRC will use the next year to ensure businesses still preparing for the changes.  They will update their existing guidance to reflect the delay as quickly as possible.

Other materials:

• REC will update our written materials as quickly as possible to reflect this delay. We are also working on our support package for the 2021 roll out and will update members in due course.  Please keep an eye on this IR35 hub and the IR35 section of the legal guide. 

• Meanwhile all the other legal changes resulting from the Government’s Good Work Plan are going ahead.  See the GWP hub for further information on Key Information Documents, Written Statements and the repeal of the Swedish Derogation.

Read HMRC's statement on the IR35 delay.