IR35 changes will go ahead in 2021: How you can prepare

By Steve Smith

It’s come around again. IR35 changes are set to be upon us 6th April 2021, following a year delay due to the pandemic. So, now is the time to be preparing. But, what do you need to know?

During a survey we carried out last year on 500 HR professionals and contractors, we found 47% were very concerned about the drain on resources brought about by preparing for the IR35 legislation.

Source: Procorre’s Spotlight on IR35

Therefore, a key learning we can take away from last year, is the importance of being prepared when the changes inevitably take place next April.

IR35 changes recap

From 6th April 2021, all public authorities and medium and large sized clients will be responsible for deciding the employment status of workers (sometimes known as contractors).

If the Off-Payroll working rules apply, it means the responsibility of making a determination of employment status falls on the end-user client. Once this determination has been made, the contracting party and the worker need to be notified of their conclusion via a Status Determination Statement (SDS).

The final party in the chain before the Personal Service Company (PSC), must then operate payroll, make deductions for income tax and employee’s NIC’s and pay employer’s NIC’s on fees paid for the services.

How do you determine worker’s IR35 status?

To determine the status, some key questions to ask regarding the engagement of the worker and organisation include:

  • Do they (the worker) have any right of substitution?
  • Do they use equipment provided or their own?
  • Do they always carry out the work on site?
  • How are they paid?
  • In what capacity is the worker represented by the client, either internally or to third parties?
  • What is the termination period of the contract?

Is there a test to take that can help determine worker status?

HMRC has a helpful online tool called CEST, which helps identify employment status based on a worker’s engagement with the organisation. It determines whether the worker should be classed as employed or self-employed for tax purposes. By asking a number of questions about the nature of the relationship between the worker, the intermediary and the client, a decision can be made.

HMRC has stated that the output from the CEST tool which contains all the questions and answers, meets the legislative requirements for a valid SDS.

What about small companies?

The Companies Act 2006 sets out what makes a company qualify as ‘small’. A company is considered small if it satisfies two or more of the following requirements:

  • Its annual turnover is not more than £10.2 million
  • Its balance sheet total is not more than £5.1 million
  • It has no more than 50 employees

If a PSC is working for a client that is considered ‘small’ they need to continue to comply with the IR35 rules of determining their own status. Therefore, taking responsibility for payroll, tax deductions and NICs’ (if their own status determination finds that they are a deemed employee).

What happens if a worker appeals their status?

If a worker appeals their status, the client needs to respond to the worker within 45 days. If the original determination is correct, the client must provide a justification. If the client is incorrect, a new SDS must be issues.

At Procorre, we can help ease the burden from clients. We offer our packs as SDS, which provide a more tailored, personal approach than CEST and we are on hand to assist with any appeals.

Further to this, we can assist with contract drafting to help client’s workforce maintain contractor status.

For any PSC’s working with ‘small’ clients, our IR35 Review Pack will help ensure workers are compliant and fall outside of IR35.

Get in touch with one of our experts today to find out more.

Written by Steve Smith, Head of Inside Sales at Procorre