On 6 April 2021 the IR35 rules are changing. If you provide services to clients in the private sector through an intermediary such as a personal service company, what steps can you take to check if you’ll be affected?When can IR35 apply?
The key factor in deciding if IR35 applies to work you do through your company or other intermediary, e.g. a partnership, is employment status. From 6 April 2021 the new rules can require your customer to determine the status of the work you do for them. They must decide if you would be an employee if you provided your services direct rather than via an intermediary. If yes, IR35 applies and your customer may have to deduct PAYE tax and NI from the money it pays you after that date. Note that these rules already apply if you work for customers in the public sector.Do the new rules apply?
If IR35 applies to your work, but your customer is a small business or other organization, the new rules won’t apply and you can continue to be paid without tax or NI being deducted first. However, if they aren’t small the new rules will apply, subject to a few exceptions. The size of any business etc. is determined by definitions given in the Companies Act 2006 (see The next step ).
Trap. Even where your customer isn’t required to consider if IR35 applies, you are. If it does apply, you must account for PAYE tax and NI on the money you receive for that work to which IR35 applies. It’s therefore vital you know who is responsible for making the IR35 decision well before 6 April 2021.Client size: how do you know?
The good news is that the onus is on your customers to decide if they are small or not. If they aren’t, i.e. they are medium-sized or large, they must send you a so-called status determination statement (SDS). This must say whether or not they think IR35 applies and give their reasons for coming to that decision.Received an SDS – what next?
If you get an SDS from a customer, that implies they are either medium-sized or large. If your client is small, you wouldn’t expect an SDS. But it’s too important an issue to assume someone else is dealing with it. HMRC knows this and so the new rules give you the right to ask a customer if they are classed as small. You send a request in writing. Say that you’re asking under the “off-payroll working rules in Chapters 8 and 10, Part 2 ITEPA 2003 ”. You should also say which tax year you’re asking about. Your customer must reply within 45 days.Act soon
If your work for a customer is expected to end before 6 April 2021, you don’t need to worry about the new rules. Conversely, if you expect to be working on or after that date you’ll probably want to know sooner rather than later if your customer thinks IR35 applies. This gives you more time to challenge their decision if you believe it’s wrong. Tip. For current and new contracts that will run beyond 5 April 2021, ask the client to carry out a review of the new rules well before that date. When you receive their response use HMRC’s “check employment status for tax” online tool to review the decision and if necessary challenge it without delay (see The next step ).
Contact your customers well before 6 April 2021 and ask if they are required to determine your employment status under the new rules. They must respond within 45 days. If you receive an employment status determination which you don’t agree with, check it using HMRC’s online tool and if necessary challenge your customer’s decision.