16 things to know for IR35 tax rules this April

02/03/21 • 13 min

Major changes are happening this April as businesses become responsible for deciding the employment status of the contractors they engage through an agency or the contractor’s own limited company, known as a Personal Service Company or PSC.

Businesses will assume PAYE liability on the payments it makes for the contractor’s services – if it decides the contractor is really a ‘disguised employee’ rather than a genuinely independent contractor. These businesses will be known as the ‘fee-payer’.

These changes - known as the Off-Payroll Working Rules and sometimes called IR35 - will affect all medium to large private sector companies with a UK connection from 6 April 2021. (IR35 has been in force in the public sector 2017). Many businesses have underestimated how much preparation is needed to be ready for these new rules.

Deborah Scales Employment Solicitor explains how to comply.

Deborah Scales Employment Solicitor explains how to comply.

Previous Episode

Impact of Brexit on Employment & HR in 2021

On 31st January 2020, the United Kingdom formally left the European Union. The UK has now entered into a new trading partnership with the EU under the EU-UK Trade and Cooperation Agreement. New rules now apply on exports, tariffs, data and employing people from within the EU.

Although this meant that No Deal was averted, most observers on both sides of the political debate would recognise that it was a hard Brexit, with the UK leaving both the Single Market and the Customs Union.

For those who voted for Brexit, the main appeal appeared to be around the notion of capturing a sovereignty which had existed in the past, but had been lost to a foreign power. It is important to understand though that any loss of sovereignty had in fact been “loaned” freely by successive, sovereign UK Parliaments to the European Union.

Amanda Glover, Employment Solicitor takes an in-depth look at the Brexit workforce related changes and how this impacts businesses going forward.

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How to avoid IR35 penalties

On 15 February 2021 HMRC published its policy paper explaining how it intends to help and support organisations which must comply with changes to the off-payroll working rules (IR35). The IR35 rules will apply to all medium and large sized businesses in the private sector with a UK connection from 6 April 2021. The policy paper sets out HMRC’s compliance principles and when HMRC is likely to investigate suspected tax avoidance. It contains examples and helpful links to further HMRC guidance.

HMRC clearly recognises the complexities faced by organisations now having to prepare for IR35 rules. It promises to help “customers trying to do the right thing” and work with those who make genuine mistakes about the employment status of the individuals they contract with through personal service companies. HMRC has reiterated its pledge that in the first 12 months it will not impose any penalties for inaccurate status determination statements, providing that ‘all reasonable care’ has been taken. This penalties exemption will not apply where there is deliberate non-compliance or fraud.

While this supportive compliance regime is to be welcomed businesses should not be complacent. Genuine mistakes will not be penalised but they may not be forgotten either. If HMRC identifies mistakes in the way a business has applied the off-payroll working rules HMRC will expect it to ‘self-correct’. And HMRC may do follow-up checks by reviewing available data such PAYE Real Time Information (‘RTI

Deborah Scales, employment solicitor explains the guidance.