A controversial set of changes to off-payroll working (IR35) rules is due to take effect in the Private Sector from next April.

For contractors, the next few months represent a crucial period in which to prepare for the changes and minimise the financial impact of the tax changes.

To help you get ready for the April 2021 IR35 reforms, we have published a brief guide with only the key facts that you need to know about.

What is IR35

Off-payroll working rules, commonly referred to as IR35, refers to anti-tax avoidance legislation used to tackle ‘disguised employment’.

The rules can apply if a contractor provides services to a client through their own limited company or another type of intermediary.

A disguised employee is someone that would have been an employee if they were providing their services directly to the company. IR35 rules mean that these individuals pay broadly the same tax and National Insurance contributions as employees.

What changes will happen in April 2021?

April 2021 will not bring a change to the IR35 rules themselves, but rather it will see a change in how the rules are enforced. The April 2021 changes will bring enforcement of IR35 rules in the Private Sector broadly into line with enforcement in the Public Sector.

In April 2017, new rules for Public Sector contractors made the responsibility for judging IR35 status lie in the hands of the Public Sector client, rather than the contractors. This will be mimicked in the Private Sector, with all medium and large sized clients made responsible for judging a worker’s employment status from 6 April 2021.

What factors influence IR35 determinations

There are three main factors that influence IR35 determinations:

• Control – Outside IR35 contractors are generally expected to control how they work on a day to day basis. If a client exercises control on how, when or what a contractor is doing, this is an indication that a contract falls inside IR35.
• Substitution – One key test of ‘employment’ is whether your limited company can provide a substitute to work on your behalf. If you could genuinely provide a substitute and have done so in the past, an assignment is likely to be outside IR35.
• Mutuality of obligation – Outside IR35 contracts generally have no mutuality of obligation. This means there is no obligation from the client to offer work and there is no obligation for the contractor to accept work offered.

What can I do to avoid falling inside IR35?

The only way to avoid paying more tax and National Insurance on a particular contract is to speak to the client. You can try to ask them for their reasons why you are classed as inside IR35 and try to renegotiate these terms if possible.

If there is no prospect of renegotiating with the client, then you can look at other solutions to minimise the financial impact of being inside IR35. One of the best ways to mitigate the effects of IR35 is to switch to working under an umbrella company. Using an umbrella company can help you unlock some additional tax incentives that you would not be entitled to if you continue working through a limited company.

Download our Limited Contractor IR35 Guide here >

For more information about IR35 and how joining an umbrella company could help minimise your tax liability, speak to a member of the team today. Call: 0800 121 6513.