IR35 in 2021: What are the latest updates to the legislation?

In our 2020 IR35 summary we said the changes were just around the corner. But this time they really are.

The anti-avoidance tax legislation is designed to separate those who are outside IR35 – the self-employed - from those who are inside IR35 – the ‘disguised employees’. Currently, there are around 5 million people in the UK who are self-employed and could be impacted by the updates. And since most sectors use the services of contractors this is one of the biggest legislative changes for the global workforce.

IR35 was first implemented in 2000 but has since been reformed several times. The latest changes were meant to go into effect in April 2020 but the outbreak of coronavirus put the brakes on the legislative reform. Now almost a year on, we’re taking you through a refresher of what IR35 will mean for you.

IR35 refers to Off Payroll Working rules. The best overview of IR35 is to think of it as a UK legislation that closes the loophole currently allowing people to avoid tax. Despite the legislation being around for over two decades, IR35 might have only appeared on some people’s radar in recent years. Why?

The private sector update in April will mean that public and private IR35 rules align. In just a few months, the responsibility for setting IR35 status and paying tax will shift from the contractor to the employer. That said, it’s equally important for contractors to be up to date with the Inland Revenue law.

While contracting does offer a tax advantage there are other benefits both for the individual and the company. Using contractors allows companies to mobilise a team on short notice and benefit from the unique mix of skills that contractors gain working for different clients. As for the individual, they gain flexibility, variety, the chance to network and other contracting benefits.

However, HMRC is cracking down on ‘disguised employees’. They’re taking a closer look at the relationship between them and the employer to pick out those who are simply not a contractor or freelancer. This rule won’t affect any person working through an umbrella company as their pay comes through the PAYE system. However, for those who work for their own limited company, the HMRC may choose to investigate if they claim to be working outside IR35.

Now that employers - or end clients - must determine whether their contractors are in fact contractors or deemed employees, this has kicked up a flurry of speculation about whether the reform will bring contracting to an end. The size of the contractor workforce is the first indicator that this is not the case.

The conditions for IR35 outline that only certain companies that will be affected by the legislation, but for those who are subject to the changes, there are a few hoops to jump through. The good news is that employers who are prepared for the changes will be in the best position to attract the top talent. It’s important that they maintain a dialogue with contractors, lay out the plans early on and make sure the transition is as smooth as possible.

We’re here to help you understand and prepare for the IR35 reform. Throughout the legislation update, we’ve kept our contractors and businesses up to date on the latest IR35 news, making sure the transition is a smooth one.

We hosted a webinar to explain the Off Payroll Working rules, covering how the status of a contractor is determined, what the changes will mean for contractors and a discussion surrounding the recent survey responses received. You can access the webinar through our IR35 Hub, where you can also download our IR35 Contractor and Client guides.

We’re on hand to help with IR35 queries, retention calculations and the IR35 status appeal process. Get in touch to speak to our in-house IR35 specialist.