Are you ready for IR35?

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On 6 April 2021, there will be a major overhaul of off-payroll working arrangements as the IR35 rules take effect. IR35 is aimed at tackling the situation where individuals seek to avoid paying PAYE statutory deductions by supplying their services through an intermediary and paying themselves dividends.

The IR35 rule will now place responsibility on the client who engages the individual contractor via a personal service company, to determine whether they would, if engaged directly, be considered an employee. If so, the client will need to deduct PAYE statutory deductions from the fees paid. 

What is an employee?

From an employment law perspective, a number of factors will determine employment status and each case is dependent on its own merits. However, an individual is more likely to be considered an employee if:

  • they are required to provide personal service;
  • there is mutuality of obligation which means an expectation of the individual for work to be provided and an expectation of the business for the individual to carry out that work; and
  • a reasonable degree of integration and control exercised over the individual by the business when carrying out their role.

What are the next steps?

Action is needed now to be ready for the IR35 changes coming into force.  If you engage contractors through personal service companies, we would recommend that you take the following steps without delay:

  1. Review your terms of engagement to ensure they comply with the IR35 rules; 
  2. Put in place a system for making employment status determinations and for considering appeals from contractors and intermediaries;
  3. Contact your contractors and intermediaries to agree new terms where necessary; 
  4. Contact us for advice should you require any further information in relation to IR35 or other employment law changes coming up in April 2021; and
  5. Holiday pay calculations is another area that is changing on 6 April 2021. See our article "Unsure about your holiday pay entitlements” for more information.

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