Effective from April 2021, the new IR35 rules transfer the responsibility of determining workers’ employment status to private businesses. Previously, this obligation rested with intermediary companies.
The onus is now on you.
Navigating this legislation is challenging due to its unclear definitions. This complexity has posed challenges for HMRC in recent IR35 cases involving prominent UK taxpayers.
Nevertheless, ensuring compliance with these evolving regulations is essential. And this is your starting point.
IR35 is the informal term for HMRC's 'off-payroll working' rules, which are a component of the Finance Act. The initial press release introducing the details was titled IR35.
Commonly referred to as 'intermediaries legislation,' it pertains to employers engaging workers through a third party. HMRC's objective is to identify 'disguised' employees—individuals avoiding tax by working through a third-party company when they would otherwise be considered employees. This tax discrepancy results in substantial losses to the Treasury.
The purpose of IR35 is to "ensure that workers, who would be classified as employees if directly contracted, contribute roughly the same Income Tax and National Insurance contributions as employees."
The rules for off-payroll working come into play when individuals provide their services through an intermediary, typically their own personal services company, but it could also be a limited company, partnership, or employment agency.
The critical factor in determining the applicability of these rules is whether the worker would be deemed an employee if they were not engaged through a third-party entity.
This is where things can become unclear.
There isn't a specific checklist available to establish employment status, and this ambiguity forms the crux of IR35 cases. The key questions revolve around whether the worker would be classified as an employee without the involvement of a third party, if they genuinely operate as an independent contractor, and if their actual working practices resemble those of a permanent employee.
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