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.