IR35 from April 2021
Updated: Feb 5
HMRC are pushing ahead with IR35 to stop the use of Personal Service Companies to avoid taxes. Companies can reduce employer national insurance payments and negate the need to pay sick pay, holiday pay, and provide a company pension scheme for workers. Such tax vehicles are popular in certain industries as they offer the worker, working through a personal service company, an uplift in pay and lower taxes through corporation tax and dividends.
From April, Medium and Large businesses who employ people as contractors through Ltd companies will now be checking to see if their use of such companies is determined as employment. If so, this will mean they will have to pay the additional fees, like National Insurance, to the Government, making the whole transaction unprofitable. Undoubtedly the impending implementation of the rules will cause certain industries to rethink their business models and pricing. We will wait to see if people who fall inside the rule IR35 go Self-Employed or go PAYE in the next few months. The CEST (Check Employment Status Tool) has been enhanced since its inception, and it can be quite complicated. To check the CEST tool, you can click HERE.
If you are providing your services to your client through a Ltd company to a medium or large employer, they will have to make a determination of your employment status for tax purposes. If they decide you fall into IR35 they will need to deduct NI and PAYE before paying your company.
When you submit a tax return, the income and tax already paid will be shown in the employment pages of your Self Assessment return. If they determine that your contract is outside the off-payroll working rules and you are self-employed for tax purposes, your limited company or other intermediaries will continue to receive gross payments and will remain responsible for meeting its tax obligations for that income. The only good news is that HMRC compliance checks into your intermediary company regarding off-payroll working rules will not open a new compliance enquiry into returns for tax years before 2021-22 unless there is reason to suspect fraud or criminal behaviour.
If you are unsure if this will affect you, try using this flow chart HMRC has designed. Click here to open the flow chart in a new window.
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